Ask the Scholar

Document scope · 1 page
doc
Scholar
Ask about this object, its catalog metadata, its source description, or the page inventory. For page-specific OCR and visual context, open one of the page chats.

Scholar Source Context

Document identity
localId
28277116
label
Volume 567, September 5 – September 9, 1942
core
doc
dtoType
document
pageCount
1
Source metadata
Source extras
naId
28277116
levelOfDescription
fileUnit
recordType
description
ocrSource
nara-archive
Single page context
seq
1
pageIndex
0
type
document
mediaId
c1e7e7349e644e27
ocrText
DIARY Book 567 September 5 - 9, 1942 - A - Book Page Airplanes Aircraft despatched, week ending August 25, 1942 - British Air Commission report - - 9/5/42 567 25 - B - Beer See Latin America: Mexico Board of Economic Warfare Minutes of meeting - 9/5/42 12 a) Relief and Rehabilitation Administration draft discussed Business Conditions Haas memorandum on situation, week ending September 5, 1942 - 9/8/42 216 - C - China Central Bank charter: Adler's description of draft . of new charter - 9/5/42 29,30,31 Customs, Bureau of Teletypewriter service outlined - 9/8/42 213 - F - Federal Reserve System City Reserve Requirements: Further reduction of 2% discussed with HMJr and Bell 9/9/42 256 a) Sproul-HMJr correspondence. 260 b) Ransom thanks HMJr for supporting his point 263 Chicago and New York - Ransom asks whether 14th or 19th is best date: See Book 568, pages 100 and 102 Financing, Government Conference; present: HMJr, Bell, Buffington, Haas, and Murphy - 9/8/42 72,133 a) Haas suggestion: May 1 certificate at rate of 65 and 11% note to run until March 1945 b) Sproul-HMJr conversation 86 c) Young-HMJr . . 93,134 d) Rouse-HMJr # # 113 e) Ransom-HMJr # . 117 f) Chester Davis-HMJr # 142 Currency See Occupied Territories Regraded Unclassified - 1- (Continued) Book Page Financing, Government (Continued) Conference; present: Treasury group, Executive Committee of Open Market Committee, Ransom, Sproul, and Baker - 9/8/42 567 148 a) Dual-purpose note discussed by Sproul 159 b) Discussion by Treasury group after Federal Reserve leaves 167 1) Interest estimates worked out 178 c) Baker memorandum on possible new issues dated September 15, 1942 179 d) Haas memorandum on possible new issues 181 e) Calendar of direct and guaranteed bonds, notes, and certificates 182 War Savings Bonds: Radio Station sales - 9/5/42 6 Sales, May 1942-August 1942 - Haas tables and charts 191 Payroll Savings Plan - progress of: December 1941-- August 1942 196 Winchester, Virginia, program discussed by HMJr and Robertson - 9/9/42 238,250 a) Robertson--Randolph Paul correspondence - 9/18/42: See Book 570, page 167 Finley, David E. See National Gallery of Art: Widener Collection Foreign Funds Control Census of American-owned property in foreign countries discussed by 9:30 group - 9/8/42 66 - I - Inflation FDR's message to Congress - 9/7/42 46 Address by FDR - 9/7/42 54 - L - Latin America Mexico: Trade Agreement: Beer - proposed reduction in import duty - 9/5/42 14 Lend-Lease Report for week ending September 5, 1942 - 9/8/42 230 United Kingdom: Federal Reserve Bank of New York statement showing dollar disbursements, week ending August 26, 1942 - 9/5/42 20 Gold and dollar assets - 9/9/42 331 Reciprocal Aid: Bookkeeping procedure discussed in State-Treasury correspondence - 9/9/42 321 a) Lend-Lease--Treasury correspondence 9/11/42: Book 568, page 185 Regraded Unclassified - M - Book Page Mager, Harold "Who's Who" by Kuhn - 9/9/42 567 271 Mexico See Latin America Military Reports British operations - 9/5/42, etc 32,34,60, 233,332 Japanese and United States Naval Vessels Sunk and Damaged - Hoflich report - 9/8/42 235 Bombing Raids over Western Europe during August 1942 - Hoflich report - 9/9/42 333 a) Beginning of United States raids with Flying Fortresses Morgenthau, Henry, Jr. Trip to England: Postponement discussed by HMJr and General Marshall - 9/5/42 237-A - N - National Gallery of Art Widener Collection: Finley thanks Treasury for assistance in acquiring collection - 9/8/42 209 - 0 - Occupied Territories Currency discussion of HMJr, Phillips, and Carter reported to Bell and White - 9/9/42 243-A - P - Post-War Planning Relief and Rehabilitation Administration discussed at Board of Economic Warfare meeting - 9/5/42 12 - R - - Radio Stations See Financing, Government: War Savings Bonds Relief and Rehabilitation Administration See Post-War Planning Research and Statistics, Division of Report for April 1942 - 9/5/42 272 Revenue Revision Treasury attitude on (1) reduction of exemption to $1000 if not associated with spendings plan, and (2) sales tax discussed at 9:30 meeting - 9/8/42 63 Spendings Tax (See also Book 566): Rejected by Senate Committee - 9/8/42 127 a) George plan described by Paul 128 b) Resume of Committee action - 9/9/42 249 c) Luncheon meeting with Senators George, Barkley, and Brown; Congressman Doughton: Gaston, Paul, and Blough - 9/9/42 244 d) Newcomer memorandum on possible publicity: Blough memorandum 9710/42: See Book 568, page 29 Book 568, page 30 Regraded Unclassified - R - (Continued) Book Page Revenue Revision (Continued) FDR's brief mention of tax situation discussed by HMJr and Walter Stewart - 9/8/42 567 205-A - S - Stewart, Walter See Revenue Revision - T - Taxation See Revenue Revision Teletypewriter Service See Customs, Bureau of - U - - United Kingdom See Lend-Lease - V - War Savings Bonds See Financing, Government Widener Collection See National Gallery of Art Winchester, Virginia See Financing, Government: War Savings Bonds TREASURY DEPARTMENT Washington FOR IMMEDIATE RELEASE, Press Service Saturday, September 5, 1942. No. 38-13 Secretary Morgenthau today made the following statement: In the coming week the Treasury is going to have to borrow another $3,000,000,000 to help pay for the war. This is to be done by public offering of interest-bearing bonds for subscrip- tion through the Federal Reserve Banks. I have no doubt that institutional investors, commercial banks and other large pur- chasers will respond in the fine way in which they have re- sponded to all offerings of Government securities since the war began. Yet too much reliance on this conventional kind of borrow- ing has its dangers, and I feel that the American people should become more aware of its dangers. Specifically, we. cannot hope to finance this war in an orderly manner and without a further serious rise in the cost of living unless our regular borrowing is supplemented by bold and resolute action in many directions, among them in the fields of taxes and savings. My problem is not simply one of getting more money. It is a problem of enlisting the taxes and the savings of all the American people themselves. It is a problem of attacking un- necessary spending, which is now reaching boom proportions and which is threatening to drive the cost of living to heights which will affect every American home. We have been at war for almost a year, yet we AS a people are still spending for things we want and can get at a rate far higher than a war economy can afford. This cannot go on. Our war on the home front cannot be won unless this evil of un- necessary spending is checked and brought under control. We must realize that we are fighting a war for our very survival as a nation and that we cannot expect comforts as usual or spending as usual. In every community in the land young men are going out to battle fronts all over the world to fight for us. It seems a small thing to do for them that we should give up temporarily some of the comforts we possess, the comforts that they are denied. 2 - 2 - The spending that is going on today is a national danger and its continuance will have disastrous results for every American. We must attack unnecessary spending with stern remedies, through the fiscal field as well as through other devices, and there is no more time for delay. With the double purpose of bringing billions of dollars into the Treasury and of discouraging unnecessary spending, the Treasury submitted to the Senate Finance Committee last Thursday a new form of tax to be known as the spendings tax. It is aimed at everything above what we need and what we save. It is a tax in two parts -- the first a flat levy of ten per- cent on spendings of everyone above a bare subsistence income, and the second a graduated tax on higher spendings which be- comes frankly a penalty tax on those who spend thousands of dollars unnecessarily in these times when spending actually impedes the war effort. The first part, the flat 10 percent, will be regarded as a debt to the taxpayer and will be repaid in full after the war. From the first part, the refundable ten percent, some $4,500,000,000 will flow into the Treasury; from the second, about $1,200,000,000, in revenue would be yielded each year. But this does not tell the whole story, for there is no way of estimating the amount of saving which will be encouraged by such a tax. It is the first tax measure I have seen which actually gives an incentive to thrift, to the purchase of War Bonds and the repayment of debt, to the payment of life in- surance premiums and many other forms of true savings. All such expenditures will be deductible. The more you save, the smaller the tax you have to pay. This is the principle of the spendings tax. To me it is as simple as grade school arithmetic. Yet I hear it described as "complicated" simply because there are many technical de- tails in its structure. In its actual impact on the taxpayer, it will be severe, because severe measures are needed, but it will require no elaborate bookkeeping or computation. For the great majority of our taxpayers it will mean the filling out of one very simple form to be attached to the regular income tax form -- and this, I may point out, has already been vastly simplified for them. Regraded Unclassified 3 - 3 - Every new tax seems "complicated" when it first appears. The income tax which we now take for granted, was regarded as complicated, unworkable and unsound when it was introduced a quarter of a century ago. Surely those who complain that the tax is "complicated" mean rather that it is new and un- familiar. Its principle is simple, its logic is unassailable, and its operations can be handled through the normal income tax machinery. The problem of financing the war without inflation is too grave and too pressing to let any major tax proposal be disregarded without the most serious thought and study. Accordingly, I regard it as a slur upon the Senate Finance Committee to suggest that the Committee is about to reject the spendings tax after only perfunctory consideration. Such a suggestion is not true. The Senate Finance Committee is as much aware of the gravity of this hour as we at the Treasury or anyone in 8. position of authority, and its mem- bers realize as I do, the need for additional fiscal measures to prevent unbearable increases in the cost of living. Senator George, the distinguished Chairman of the Committee, has discussed it in detail with me, and I know that he and his fellow members will consider it with all the earnestness and seriousness which a proposal of this magnitude deserves. Moreover, I have been concerned at the disposition in some quarters to couple this spendings tax with a sales tax -- as if a sales tax were any answer to our problem. A retail sales tax of five percent on all goods not now sub- ject to heavy Federal excise taxes would, according to our estimates, raise only $1,635,000,000 even if it included sales of food, medicines, clothing and fuel. More than that, it would fail to tax many kinds of services, it would be grossly unfair in falling upon those with only $5 or $10 a week of earnings, it would play havoc with price ceilings, and it would have an utterly inadequate effect in discourag- ing consumer spending. The spendings tax, on the other hand, will bring four times as much money into the Treasury in a single year. It will tax all spendings, whether goods or services, above necessities and above savings. It will not affect price Regraded Unclassified - 4 - ctilings in any way. It will, I am convinced, exert such a restraining effect upon unnecessary spending that it will make thrift not only wise but fashionable. I know of no more effec- tive way of insuring that the people tighten their belts in war- time and put their savings away until the war is over. For these reasons it is my firm belief that, no matter what purely revenue devices Congress may adopt, we shall still face the necessity of enacting real and basic controls of spending along the lines I have suggested. -o0o- Regraded Unclassified 5 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE September 5, 1942 To Secretary Morgenthau FROM Harold N. Graves Attached is a report from Mr. Callahan covering bond sales by radio stations. 6 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE September 4, 1942 TO Mr. Graves FROM Mr. Callahan x2 Secretary Morgenthau asked me yesterday about the progress of our radio station Bond Sale Campaign. Herewith is a preliminary report up to and including today: 52 stations report a sale through August 31) of $1,004,899. Reports are coming in daily and there are nearly 700 more stations to be heard from. Attached are clippings from NEWSWEEK and TIME which I am sure you will be interested in reading. NEWSWEEK RADIO Bond Marathon It WAS like election night. All last 9at- urday night, Blue network stations across the country peppered their listeners with figures, but the figures covered War Bonds, instead of votes. When the marathon broadcast had ended-it lasted seven hours-the Blue chain had chalked up a total of $10,475,000, the biggest day's sale of War Bonds ever made on the radio. It was the first time that an entire network-197 stations-had gone on the air to sell bonds directly to listeners. The show got under way at 9 p.m. EWT, with a two-hour "I Pledge America" program starring Orson Welles as master of cere- monies. A fifteen-minute break followed for local appeals, and then the coast-to- coast broadcast continued with nineteen big-name bands, Throughout the night minute men and others appealed for or- ders by phone, mail, or wire (Western Union handled them free). From over- seas points, American doughboys cut in with pleas. aus the radio industry sprang the first scale plug of its own bond drive, begun July 28. Described by the Preasury as "the first instance that & single indus- try as a whole has gone all the way out- side of its direct field of action on the War Bond campaign," the project was made possible when the stations were directly licensed to sell bonds. To date, more than 750 of the nation's 880 stations have been made issuing agents, and most under activity has been anlong them issully. For aside from sales appeals incorporated in sponsored programs, no well as the Treasury's own shows, the other big webs -NBC, CBS, and Mutual-have not yet on their own initiative staged programs along the lines of the Blue network-wide project. Although only five weeks old, the drive has already evolved some distinctive sales stunts. Thus Arthur Godfrey, chatterer for WJSV in Washington, has his own 10 per cent club, making roll calls of bond buyers. WMCA in New York rings & cash register on the air every time a listener calls up to make a purchase. KMBC in Kansas City has a caravan of station artists on the road plugging bond sales. Red Barber, baseball announcer, got $100,000 in pledges from eighteen states broadcast of a Dodger-Giant game Other WHN, using autographed baseballs and players' pictures as incentives. Mar- tin Block sold $8,000 worth in a day on his WNEW Make Believe Ballroom show. Five San Francisco stations took in more than 8280,000 in & day-long Victory Day auction of bonds. And WJZ, Blue's key outlet in New York, which cruised Broad- way with a "bond buggy." collected $3,427,000 in seventeen days. TIME 8 experimental basis from a booth at the Nat Lawn Tennis championships at For Hills in September 1939. Engineers installed the listening equipment there because reception was good, and when Ted Husing was not giving a hushed account of the tournament, monitors used the direct wire to relay short-wave news from Europe back to Manhattan headquarters. CBS has been eavesdropping on the Axis -and on more friendly stations-ever since. Under monolingual Director Gerber now work eleven listening linguists, each of whom knows at least three languages. For 19-hours a day the squad listens to both Axis and United Nations broadcasts. Each day the monitors compile a 20,000- word digest of news and propaganda slants, another 30,000 words of direct transcrip- tions. Carbons are turned over to the OWI, important stories are relayed to press associations by teletype, but the main purpose of the listening post is to aid CBS in its fight against Goebbels. Miss Liberty, Saleswoman Hollywood, which has sold glamor to the nation, and radio, which has sold it practically everything, are out to prove that they can sell the U.S. a billion dollars' worth of war bonds this month. Last week a sales crew of cinema ladies (af onald Colman), leaving Los Angeles for tour of 300 cities, were photographed in a fetching frieze against a background of soldiers. Last week, too, seven comedi- ans, six vocalists, four actors and 21 bands took part in one of the most successful broadcasts ever made. I Pledge America, a six-hour, 45-minute show, was the longest in the Blue Net- work's history. The broadcast started at 9 p.m. Saturday and continued until 4 a.m. Sunday with only one 15-minute interrup- tion (at II, to let Ford's Earl Godwin repeat Watch, the World Go By for West- em listeners). At 9 o'clock the Statue of Liberty stepped off her pedestal and went to Man- hattan's RCA building with Orson Welles. There, for two hours, she listened to Ed- ward G. Robinson, Jane Cowl, Bob Burns, Jack Pearl, Red Skelton, Fanny Brice, Amos 'n' Andy and other comedians and actors snarl at the Axis, repeat the tales of U.S. heroes, past & present. Some heroes spoke for themselves, by short wave, from England, Hawaii, the Canal Zone. Often the listeners were asked to show pretty Miss Liberty they appreciated her by sending collect telegrams to their near- est Blue station ordering war bonds. The whimsey was profitable. By II, when the Statue returned to her island, Blue ht eceived orders for more than four million dollars in war bonds. When the program swung to dance music and picked up name bands, the orders kept pouring in. Blue's volunteer tabulators were nearly swamped, but at 4 a.m. could proudly announce the total: $10,359,368. Wires were still coming in, a heavy mail-order business was expected. Blue officials, who would soon receive the bill for all tele- grams, were far from blue. September 9 Mrs. Klotz: (For Secretary Morgenthau) Walter Lippmann's home advises that he has gone to England and will be away until about the 20th of this month. Wr FROM: MR. GASTON Treasury Department 10 TELEGRAPH OFFICE VIA WESTERN UNION 1942 SEP 5 AM 9 08 M326N FR 18 NT COLLECT GOVT TDWD BEACON NY SEP 4 1942 HERBERT GASTON DLR 5TH 9 AM OFFICE OF SECY OF TREASURY WASH DC PLEASE TRY SEE WALTER LEPMAN AND EXPLAIN TO HIM OUR NEW TAX PROPOSAL COPY TO MRS KLOTZ MENRY MORGENTHAU JR 900 AM. Regraded Unclassified 11 BOARD OF ECONOMIC WARFARE ECONOMIC DEFENSE BOARD WASHINGTON, D.C. OFFICE OF THE EXECUTIVE DIRECTOR White SEP 5 1942 The Honorable The Secretary of Treasury Dear Mr. Secretary: The minutes covering the meeting of the Board of Economic Warfare, which was held on Tuesday, August 18, are enclosed. If there are any corrections which you care to suggest, please let me know. Sincerely yours, Mil Perkins Executive Director Enclosure 12 SECRET Minutes of the Meeting of the Board of Economic Warfare Held August 18, 1942 at 10:00 A. M. A meeting of the Board of Economic Warfare was held in the Vige President's office in the Capitol Building at 10:00 A. M. on August 18, 1942. Those present: Mr. Dean Acheson, representing the Secretary of State Mr.Charlos Fahy, representing the Attorney General The Scorotary of the Navy Mr. Paul Apploby, representing the Socretary of Agriculture Tho Socretary of Commorce Mr. Nolson Rockfellor, Coordinator Intor-Amorican Affairs Mr. William Batt, roprosonting Chairman, War Production Board Mr. E. R. Stottinius, Jr., Lond Loaso Administration In addition, the following porsons wore prosont: Mr. Wayne Taylor, Department of Commorco, Mr., W. L. Clayton, Dopartmont of Commorco Mr. Wayno Coy, Bureau of the Budgot Mr. Loslio Whoolor, Dopartment of Agriculturo Mr. Robort Patterson, War Dopartment Mr. Harold H. Noff, War Department Mr. Winfiold Rioflor, Board of Economic Warfaro Mr. Wm. T. Stono, Board of Economic Warfaro Mr. T. C. Achilles, Dopartment of State Mr. John Lockwood, Offico of Intor-Amorican Affairs Mr. Adlai Stovonson, Navy Dopartment Mr. Milo Porkins, Board of Economic Warfare Mr. E. W. Gaumnitz, Board of Economic Warfare Mr. Porkins, acting as Chairman of the moeting until the arrival of tho Vico Prosidont, roforrod to tho plan for a united nations' roliof and rohabilitation organization outlined in the draft, "Roliof and Rohabilitation Administration", draft No. 2, datod August 13, 1942, copios of which had boon circulated. Mr. Porkins statod that tho draft had boon propored as a rosult of a sorios of discussions hold by an ini ormal committoe for submission to the Prosi- dont, and if approved by him for submission to othor governmonts. It is important that mombors of the Board should be in agreement as to the program and also that the judgmont of tho Board should be secured as to the timo of roloase or publication. Mr. Acheson roviowed tho background of the dovolopment of tho plan, stating that the Prosidont had requested tho formulation of a plan which might be available when nocessary. Tho quostion of timo of public roloaso or issuance was of course in tho hands of tho President. Regraded Unclassified SECKEL - 2 - In reviewing the background, Mr. Achoson stated that the British had formed an inter-allied reliof committeo honded by Sir Frederick Loith-Ross in the fall of 1941, partly bocauso prossed by exilod governments and partly to givo considoration to a program which might be plaood in offect upon rooccupation. Some criticism having devoloped because the British Government WQB too largely tho controlling factor, it was thought that a committee more international in character should be formod to deal with the problem. The State Department in May, 1942 requested that Sir Fredorick Leith-Ross como to the United States for consultation. In reviewing tho plan as drafted, Mr. Achoson notod that in addition to laying tho basis for an international organization to capo with tomporary relief problems in rogained areas, the plan pro- vidod an agoncy to serve as a focal point for centrulising the consider- ation of any plans which might be developed and for rocommonding action programs with rogard to rehabilitation. He stated also that a program such as outlined might reduco tho tondoncy of cortain governments, principally the French and Dutch, and to a losser extent the Norwogians, to acquiro and stockpile products for lator uso. Mr. Achoson stated that if the program mot with general approval, the procodure would be to discuss it with the Russian, Chineso, and British Governments and after cloarance with thom to disouss it with a second group, probably the Dutoh, oto. Later a goneral conference would be callod. Thoro was considerable discussion of reprosontation and pro- ceduro, with discussion contering mainly on whother the Director General assumed rolief rosponsibility immediatoly upon rooccupation of any aroa (Articlo IV) and tho quostion of timo at which tho genoral program should be made public. It was agrood that Articlo IV should be olarified, BO thore would be no question as to the relationship of responsibility of the armed, forcos and the Diroctor Genoral following rooccupation. Undor Secretary Pattorson insisted that tho probloms of roliof, including civilian roliof, during hostilities and while they wore still threatonod, would have to be handlod by tho Military Commander probably with a staff for that purposo. Ho indicated that a Military Commandor could not wait to consult with tho Diroctor General. This was gonorally agrood to and tho Vioo Prosidont askod Mr. Acheson to chango tho draft accordingly. On tho question of time it was agrood that in view of the longth of timo that would be consumod in nogotiating with other nations, no final action would be possible immedintoly. It was the concensus that nogotiations should procoed, but that no public announcoment should be mado at this time. Regraded Unclassified 13 - 3 - Leukago of Information Mr. Porkins stated that information of value to the onomy was being made available through roinsuranco documents which are going to foreign countries, the documents including data bearing on location and movement of goods. Mr. Porkins indicated that similar documents had beon a source of information with reference to enomy factorios in Board of Economic Warfare intelligenco work. In various discussions overyono acquainted with the problem WUS agreed that action should bd takon to stop the transmission of such information, but it was not cloar what agency or agoncios should assume tho administra- tive responsibility. Mr. Fahy stated that he had boon acting as chairman of tho committeo to oonsidor tho extont of tho problem and possible mothods of coping with it. Ho stated that in tho committoo mootings, it had boon gonorally agrood that it was tho typo of job which might bo handlod by the Board of Economic Warfaro. However, within the last few days, the Offico of tho Consor had indicated that possibly it was in a position to handlo the problem. 1 Several phasos of tho problom woro discussed briofly by various members of the Boards the possibility that it would be nocossary to ostablish a roinsurance corporation under R. F. C., for oxamplo, which might provide facilitios in caso transmission of information to foroign nations should be stoppod; tho possibility that arrangoments might bo mado by such companies as Lloyds to ostablish offices in the Unitod Statos 80 that it would not be necossary to send information out of tho United Statos. It was finally docidod that further conferences should be hold under Mr. Fahy's diroction bofore final notion was rocommended. The mooting adjourned at 11:20 A. M. TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE Sept. 5, 1942. TO Secretary Morgenthau FROM Mr. White Subject: Proposed Reduction in Import Duty on Beer. 1. The Trade Agreements Committee has approved granting B. maximum reduction in the import duty on ale, porter, stout and beer in the proposed trade agreement with Mexico. This duty was $1 per gallon under the Tariff Act of 1930, was reduced to 50 cente à gallon in 1935 by Presidential Proclamation under sec- tion 330 of the Pariff Act, and would be reduced to 25 cents a gallon under too proposed action. 2. IT:0 1048 of customs revenue under the proposed reduction of duty will be a maximum of 3250,000 a year, on the basis of 1940 and 1941 Imports. Actually, the loss will be even less be- cause (a) previously large imports from the British Isles will be curtailed and imports from Japan have ceased, ao in effect the duty 15 expected to stimulate larger imports from Mexico, with the duty cut will only apply to imports from Mexico, and (b) a lower result that une provenus might even be highor than if no cut were made. The revenue from imported malt liquors is negligible compared 10 internal revenue taxation of domestic malt liquors, which yielded 5300 million in revenue during the fiscal year 1942. advantages n: " lower import tuty in this CASE overbalance the 3. (In the banks of eneral economic considerations, the loss of cultoms revenue. Too question of protection for private manufacturers is la matter on which other agencies have primary responsibility. on the Trado Agreements Committee will not object to the proposed 4. If you approve, therefore, the Treasury representative reduction in Chile dity. Regraded Unclassified SECRET 15 September 5, 1942 Exports to Russia, Free China and selected blecked countries as reported to the Treasury Department during the ton-day period ending August 20, 1942 1. Exports to Russia Exports to Russia, as reported during the ten-day period ending August 20, 1942, amounted to $23,325,000, as compared with $33,940,000 and $53,799,000 during the same perieds in July and June, 1942, respectively. Among the military equipment exported during the period under review were 18 light bembers, 36 fighter planes and 27 tanks. (See Appendix C.) 2. Exports to Free China Exports to Free Chima, as reported during the period under review, amounted to $192,000, as compared with $590,000 and $2,707,000 during July and June, 1942, respectively. Military equipment accounted for about 19% of the total. (See Appendix m) 3. Exports to selected blocked countries Exports to selected blooked countries are given in Appendix A. Most important were exports to Sweden and Switzerland amounting to $324,000 and $167,000, respectively. ISF/efs 9/5/52 HPW Regraded Unclassified STRICTLY CONFIDENTIAL 16 SUMMARY OF UNITED STATES DOMESTIC EXPORTS TO SELECTED COUNTRIES AS REPORTED TO THE TREASURY DEPARTMENT FROM EXPORT DECLARATIONS RECEIVED DURING THE PERIOD INDICATED (In thousands of dollars) Total Total 10-Day 10-Day Domestic Exports Domestic Exports Period ended Feriod ended August 1, 1942 to July 28, 1941 Aug. 20, 1942 Aug. 10. 1942 August 20, 1942 July 31, 1962 5.5.R. $23,325 $14,970 $38,295 $742,941 China 192 208 400 97,720 in 48 30 78 2,858 tserland 167 357 524 11,537 den 324 260 584 18,056 tugal 5 1 6 9,743 nch North Africa 21 1,773 29 1,802 6,305 asury Department, Division of Monetary Research September 2, 1942. Many of the export declarations are received with a lag of several days or more. Therefore this compilation does not accurately represent the actual shi,ment of a particular period. Includes Morocco, Algeria, and Tunisia. JMW:rl 9/2/42 Regraded Unclassified SECRET 17 APPENDIX B Exports from the U. S. to Free China and U.S.S.R. as reported to the Treasury Department July 28, 1941 - August 20, 1942 w (In Thousands of Dellars) Exports to Exports to Free Chine U.S.S.R. July 28, 1941 - Jan. 24, 1942 $ 32,758 $ 98,902 - Jan. 11 6,938 Feb. - Feb. 4,889 - Feb. 4,853 - Feb. 2,921 Jan. Feb. Aug. Aug. July - Mar. 10 10 11 11 11 11 20 26 11 20 Total 21 a 21 n 1 1 1 1 1 1 1 - Mar. - Har. - - Apr. 3/ w y 5/ y 2,879 8,058 $ - Apr. 4,836 Apr. 5,335 2,821 - May 296 - May 1,872 - 2,533 - 3,399 - 2,707 - June 1,664 - July 7,900 - July 590 - July y 3,066 - Aug. 208 - Aug. 20 192 23,325 $ 100,723 $ 782,056 1. These figures are in part taken from copies of shipping manifests. 2. Beginning with February 1 figures are given for 10-day period instead of week except where otherwise indicated. 3. 8-day period. 4. 11-day period. 5. Due to changes in reporting procedure by the Department of commerce this report is incomplete for the period indicated. Treasury Department, Division of Monetary Research September 4,1942 ISF/efe 9/4/42 Regraded Unclassified SECRET 18 APPENDIX 0 Principal Exports from U. s. to U. s. s. R. as reported to the Treasury Department during the ton-day period ending August 20, 1942 Value Unit of (Thousands Quantity Quantity of Dollars) TOTAL EXPORTS $ 23,325 Principal Items: Aircraft 5,150 Light bombers (2 eng. 4-20) No. 18 Fighters (P-39) No. n Fighters (P-40) No. 15 Aircraft accessories, including engine parts I - 2,449 Ammunition 2,261 .30 eal. No. 10,000,000 .32, .38 and .45 eal. No. 3,000,000 .50 eal. No. 2,628,000 37 armor piereing No. 8,860 75 m. arner pieroing and high explosive No. 25,497 Anti-aireraft armer piereing No. 21,840 20 i tracers (aireraft) No. 15,885 20 m. high explosive (Oerlikon) No. 45,000 Military tanks - medium (N-3) No. 27 2,160 Military tank parts a accessories - - 1,242 Pork and savenge Lb. 2,703,969 1,005 Iron and Steel plates, sheets and strip M.Lb. 7,698 860 Meter trucks No. 457 678 Steel bars and rods M.L.D. 7,257 547 Treasury Department, Division of Monetary Research September 4,1942 ISF/efe 9/4/42 Regraded Unclassified SECRET 19 APPENDIX D Principal Exports from U. 5. to Free Chima as reported to the Treasury Department during the ten-day peried ending August 20, 1942 (Thousands of Dellars) TOTAL EXPORTS . 192 Principal Items: Military equipment 152 Relief supplies - drugs and biologies 15 Aluminum plates, sheets, bare and rode 10 Scientifie instruments 6 Relief supplies - surgical and hospital 4 Treasury Department, Division of Monetary Research September 3,1942 157/efs 9/4/42 Regraded Unclassified 20 TREASURY DEPARTMENT OFFICE OF THE SECURTARY For Miss Chauncey September 5. 1942 COMPIDENTIAL Received this date from the Federal Reserve Bank of New York, for the confidential informa- tion of the Secretary of the Treasury, compila- tion of the week ended August 26, 1942, showing dollar disbursements out of the British Repire and French accounts as the Federal Reserve Bank of New York and the means by which these expendi- tures were financed. A lap-9/5/42 C 21 o P Y FEDERAL RESERVE BANK OF NEW YORK September 3, 1942 CONFIDENTIAL Dear Mr. Secretary: Attention: Mr. H. D. White I an enclosing our compilation for the week ended August 26, 1942, showing dollar disbursements out of the British Empire and French accounts at this bank and the means by which these expenditures were financed. Faithfully yours, 151 L. W. Knoke L. W. Knoke, Vice President. The Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D. C. Enclosure Copy:vw:9-4-42 Regraded Unclassified ANALYSIS OF BRITISH AND FRENCH ACCOUNTS (In Millions of Dollars) Strictly Week Ended August 26, 1942 Confidential BANK OF ENGLAND (BRITISH GOVERNMENT) BANK OF FRANCE DEBITS CREDITS DEBITS CREDITS Gov't Proceeds of Net Incr. Sales of Total Expendi- Other (+) or Gov't Proceeds Net Incr. Total Securities Other Decr.(-) (-) Total Expendi- Other (+) or Total of Gold PERIOD Debits tures(a) Debits Other Credits Gold (Official) (b) Credita(e) Decr. (-) in Balance Debits tures (d) Debits Credits Sales Credits in Balance First year of war (8/29/39-8/28/40) * 1,793.2 605.6 1,187.6 1,828,2 1,356.1 52.0 420.1 + 35.0 866.3(e) 416.6(e) 449.7 1,095.3(e) 900.2 195.1(e) +229.0 War period through December 1940 2,792.3 1,425.6 1,356.7 2,793.1 2,109.5 106.0 575.6 + 10.8 878.3 421.4 456.9 1,098.4 900.2 198.2 +220,1 Second year of war (8/29/40-8/27/61) 2,203.0 1,792.2 410.8 2,189.8 1,193.7 274.0 722.1 -13.2 38.9 4.8 34.1 8.8 - 8.8 - 30.1 1941 Aug. 28- Oct. 1 140.9 105.9 35.0 176,2 20.1 2.0 154.1 + 35.3 0.3 - 0.3 0.5 - 0,5 + 0,2 Oct. 2 - Oct. 29 109.0 77.3 31.7 150.9 0.8 - 150.1 + 41.9 0.3 - 0.3 0.3 - Oct. 30 - Dec. 3 0,3 - 156,1 111,6 44,5 134.6 # 1,0 133.6 -21,5 16.1 - 16,1 0.4 1 Dec, 6- Dec. 31 88.4 69.6 18,8 0.4 -15.7 - 51.5 - - 51.5 - 36.9 0,8 - 0.8 0.4 - 1942 0.4 - 0.6 Jan. 1- Jan- 28 102,3 73,2 29,1 69.3 - 0.5 68.8 - 33.0 0,2 - 0,2 0.4 - 0,4 + 0,2 Jene 29- Feb. 25 87.2 63.8 23,4 57.2 - 1.0 56.2 - 30,0 - - - Feb. 26 - Apr. 1 0.3 - 121.4 0.3 86.4 35.0 - 0.3 171.4 - - 171.4 + 50.0 0,1 - Apr. 2- -FF. 29 0,1 6.1 04.2 33.9 70.6 0,4 - - 0.5 70.1 - 27.5 0.2 0.6 + 0.3 - 0.2 0.4 . 0.4 . 0.2 Apr. 30 - June 3 204.0 81.4 22.6 165.7 - - 165.7 + 61.7 # - - C.3 - 0.3 0.3 June 6- july : 09.0 72.6 173 13.6 - - 113.6 + 23.7 - - - C.3 - 0,3 . 0,3 July 2- July 29 66.1 45.9 20,2 84.6 - - 84.4 + 18.3 0.1 - 0.1 0.3 - 0.3 + 0.2 WEEK ENDED: Aug. 5 19.6 16.7 2.9. 23.3 0.3 - 22.4 + 3.7 - I - 0.1 - 0.1 + 0.1 12 15.7 12.2 3.5 9.6 - - 9.6 - 6.1 0.2 - 0,2 0.1 I 0.1 0.1 19 13.0 10.8 2,2 20.5 - - 26.5 + 13.5 0.1 - 2.1 - - - - 0.1 26 10.2 7.1 3.1 13.5 - - 13.6(f) + 3.4 - - - 0.1 - 0.1 - 0.1 Average Weekly Expenditures Since Outbreak of War Transfers from British Purchasing Commission to France (through June 19, 1940) $19.6 million Bank of Canada for French Account England (through June 19, 1940) 27.6 million Week ended August 26, 1942 $ - million England (since June 19, 1940) 35.6 million Cumulation from July 6, 1940 $ 162.7 million *For monthly breakdown see tabulations prior to April 23, 1941. **For monthly breakdown see tabulations prior to October 8, 1941. (See attached sheet for other footnotes) Regraded Unclassified (a) Includes payments for account of British Purchasing Commission, British Air Ministry, British Supply Board, Ministry of Supply Timber Control, and Ministry of Shipping, (b) Estimated figures based on transfers from the New York Agency of the Bank of Montreal, which apparently represent the proceeds of official British sales of American securities, including those effected through direct negotiation. In addition to the official selling, substantial liquidation of securities for private British account occurred, particularly during the early months of the war, although the receipt of the proceeds at this Bank cannot be identified with any accuracy. According to data supplied by the British Treasury and released by Secretary Morgenthau, total official and private British riquidation of our securities through December, 1940 amounted to $334 million. (c) Includes about 885 million received during October, 1939 from the accounts of British authorised banks with Sew York banks, presumably reflecting the requisitioning of private dollar balances. Other large transfers from such accounts since October, 1939 apparently represent the acquisition of proceeds of exports from the sterling area and other currently accruing dollar receipts. (d) Includes payments for account of French Air Commission and French Purchasing Commission, (e) Adjusted to eliminate the effect of $20 million paid out on June 26, 1940 and returned the following day. (f) Includes: 3.3 million deposited Los British Ministry of Supply Mission 2.0 H for credit of U. 5. Any 2,1 transferred from Commonwealth Bank of Australia account here, Regraded Unclassified ANALYSIS OF CANADIAN AND AUSTRALIAN ACCOUNTS Strictly (In Millions of Dollars) Week Ended AVENUE 26, 1942 Confidential BANK OF CANADA (and Canadian Government) DEBITS CREDITS COMMONWEALTH DEBITS BANK OF AUSTRALIA (and Australian Government) CREDITS Transfers Transfers from Official Transfers to Proceeds British A/C Net Incr. to Proceeds Net Incr. Official of (+) or Official of Total British Other Total Gold For Own For French (+) or Other Decr. (-) Total British Other Total Gold Credits Sales A/C Other PERIOD Debite A/C Debita A/C Decr. (-) Credite in Balance Debite A/C Debita Credite Sales Credits in Balance First year of war (8/29/39-8/28/40)* 323.0 16.6 306.4 504.7 412.7 20,9 38.7 32.4 +181.7 31.2 3.9 27.3 36.1 30.0 6.1 - 4.9 War period through December, 1940 477.2 16.6 460.6 707.4 534,8 20.9 110.7 41,0 4230.2 57.9 14,5 43.4- 62.4 50.1 12.3 . 4.5 Second year of war (8/29/60-8/27/42)** 460.4 - 460.4 462.0 246.2 3.4 123,9 88,5 + 1,6 72.2 16.7 55.5 81.2 62.9 18.3 Ave. 28 Oct. 1 23.1 23.1 52.2 21.2 . 9.0 - - - 31.0 + 29.1 10.7 0.5 10.2 2.8 2.1 0.7 - 7.9 1941 Oct, 2 - Oct. 29 37.4 - 37.4 1947 11.9 - . 7,8 - 17.7 8,2 5.5 2.7 8.0 5.9 2.1 . 0.2 Oct. 30 - Dec. 3 52.8 0.1 52.7 32.5 19.3 - # 13.2 - 20.3 10.3 6.9 3.6 11,6 9,0 47.7 22.2 17.3 2,6 - 47.7 1 4.9 - 25.5 - 1,3 Dec. 4- Doc. 31 - 39 1,8 2,1 2,8 0,2 2.6 - 1.1 1942 Jan. 1- Jan. 28 39.5 - 39.5 33.0 27.0 - - 6.0 - 6.5 4.5 , 4.5 10,8 - 10,8 - 6.3 Jan. 29 - Feb. 25 34.1 - 34.1 35.7 12,4 - - 23,3 + 1.6 8.4 5.3 3.1 1,6 - 1,6 Feb. 26 - Apr. 1 46.5 - 46.5 99.3 20.5 7.7 - 6.8 - 71.1 + 52.8 7.8 1.1 6.5 3.6 # 35.9 14.2 3.6 344 21.7 - 1,5 - 4.2 API. 2- ADC. 29 31.4 - - - 10.9 e.o 2.9 16.8 - Apr. 30.m June 3 54.2 - 51.2 47.9 15.7 16.8 - E 32.2 - 6.3 13.2 - 5.9 9.5 3.7 14.6 - -4.6 - 1.4 June 6- July 1 47.2 - 472 72.9 14.7 - - 58,2 - 25.7 2,5 0.5 2,0 3.0 - 3.0 - 0.5 July - 2 July 29 40.8 - 40.8 31.2 9.0 - - 28.7 - 3.1 19.1 15.2 4.1 19.5 - 19.5 + 0.6 AKEX ENDED: Aug. 5 4.0 0.2 3.8 15.1 3.1 - - 12.0 + 11.1 2,5 1.0 1.5 0.4 - 0.4 - 2.1 12 7.4 - 2.4 11.6 7.3 - . 4.3 + 4.2 0.8 I 0.8 0.7 - 0.7 - 2.1 19 9.4 - 9.6 17.5 3.3 - - 14.2 + 8.1 - - - 3.2 - 3,2 - 3,2 26 17.8(a) - 17.8(a) 3.41 1)0.1 - - 3.3(m) - 14.4 2.1 2.1 - 10 - 1.0 - 1.1 Weekly Average of Total Debite Since Outbreak of Mar Through August 26, 1942 $ 8,1 million * For monthly breakdown see tabulationsprior to April 23, 1941. H For monthly breakdown see tabulationsprior to October 8, 1941. (a) Does not reflect Treasury bill transactions, (b) Includes 53.2 million of proceed< of U. S. Government checkr posited as Supplie- Ltd. Regraded Unclassified 25 BRITISH AIR COMMISSION 1785 MASSACHUSETTS AVENUE WASHINGTON, D.C. - TELEPHONE HOBART 9000 EASE QUOTE FERENCE NO. With the compliments of British Air Commission who enclose Statement No. 48 - Aircraft Despatched - for week ended August 25th, 1942. The Honourable Henry Morgenthau, Jr. Secretary of the Treasury BOND WASHINGTON, D. C. September 5, 1942. 26 MOST SECRET STATEMENT NO. 48 AIRCRAFT DESPATCHED FROM THE UNITED STATES WEEK ENDED AUGUST 25th, 1942 ASSEMBLY FLIGHT DELIVERED TYPE DESTINATION POINT BY SEA BY AIR FOR USE IN CANADA Consolidated PBY - 5B United Kingdom United Kingdom 11 Fairchild Cornell PT 26 9 Burtiss ittyhawks Middle East Port Sudan 20 ockheed 28 Hudson VI A Middle East Middle East 1 entura South Africa South Africa 4 lenn Martin 26A Marauder Middle East Middle East 4 Grumman Martlet IV United Kingdom United Kingdom 6 Northrop Vengeance India Bombay 16 North American Harvard India Bombay 13 # Middle East Port Sudan 4 TOTALS - 59 20 9 NOTE:- Statement No. 47 should be amended to show 14 Northrop Vengeance despatched to India not U.K., making a total of 40 Northrop Vengeance to India for week ended August 18th, 1942 BRITISH AIR COMMISSION August 29, 1942. Regraded Unclassified 27 BRITISH AIR COMMISSION 1785 MASSACHUSETTS AVENUE WASHINGTON, D. C. TELEPHONE HOBART 9000 LEASE QUOTE FERENCE NO. With the compliments of British Air Commission who enclose Statement No. 49 - Aircraft Despatched - for week ended September 1st, 1942. The Honourable Henry Morgenthau, Jr. Secretary of the Treasury WASHINGTON, D. C. September 5, 1942. 28 MOST SECRET STATEMENT NO. 49 AIRCRAFT DESPATCHED FROM THE UNITED STATES WEEK ENDED SEPTEMBER 1ST, 1942 E DESTINATION ASSEMBLY BY BY FLIGHT DEL'D POINT SEA AIR FOR USE IN CAN STER uda United Kingdom United Kingdom 1 OLIDATED 5B U.K. Canada en route 8 ISS yhawk M.E. Suez 16 If If Alexandria 30 +) ILD all P.T. 26 Can. Can. 10 9 U.K. U.K. 12 If M.E. Suez 5 CKHEED B Hudson VI A M.E. M.E. 1 tura South Africa South Africa 1 U.K. Canada en route 4 IN MARTIN 6A Marauder M.E. M.E. 5 timore III M.E. Suez 4 man rtlet IV U.K. U.K. 34 TH AMERICAN vard II New Zealand New Zealand 12 = M.E. Alexandria 6 tang U.K. U.K. 1 CHROW geance India Bombay 17 TALS 138 19 10 tish Air Commission ptember 5th, 1942. Regraded Unclassified C 29 o P Y PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Chungking, China DATE: September 5, 1942, 2 p.m. NO. 3 1009, Section One This is a message for the Secretary of the Treasury from Mr. Adler, and is TF56. 1. I am confidentially informed that a committee in the Ministry of Finance appointed to draft central bank charter is adopting a draft which has a general trend to strengthen the control of the government over the central bank's position and over banking policy. It is reported that bankers are (?) draft of reforms reported in TF44 of June 6 and TF 48 of July 6 which went into effect July 1, 1942 and which made the central bank the sole bank of issue and the sole fiscal agent of the government. GAUSS Cepy:bj:9/8/42 Regraded Unclassified 30 PARAPHRASE OF TELEGRAM RECEIVED Regraded Unclass FROM: American Embassy, Chungking, China, DATE: September 5, 1942, 2 p.m. NO. $ 1009, Section Two The Central Bank would also be required by the draft to fix the discount rate and the reserve rate of commercial banks; branches of Central Bank in previncial centers acting in a consultation with specially appointed (7) advisery com- mittees will be allowed to fix higher discount rates, the Chungking rate being the minimum rate. It appears that this recommendation would be the only concession to those who prepose adeption of a decentralized system aleng the lines of our own Federal Reserve System. The Government would own all the capital of the Central Bank and would appoint (?) two deputy governors, the nine directors. (All banks and individuals could buy shares under the 1935 Charter but none actually did). For final approval the draft after submittal to Ministry of Finance must go to Legislative Yuan. GAUSS Cepy:bj:9/8/42 The C 0 31 P Y PARAPHRASE OF THERGRAM RECEIVED FROM: American Embasay, Chungking, China DATE: September 5, 1942, 3 p.m. NO. # 1012 This is & message for the Secretary of the Treasury from Mr. Adler. This is telegram no. TF57 and refers to paragraph ene of telegram no. TF55 dated August 24, 1942. The Board's proposal that the two million pounds, approximately, which have accrued to the Government of China as a result of purchases of sterling (?) currencies from Chinese refugees be turned over to the Board has been agreed to by Dr. Kung. FW GAUSS Regraded Unclassified 32 COPY NO 13 BRITISH MOST SECRET, U.S. SECRET, OPTEL 307. Information received up to 7 a.m. 5th September, 1942. (1) The operation against the Channel Islands Lighthouse reported on the 3rd was carried out by 2 Officers and 10 men of the Special Service Brigade. Complete surprise was effected and the 7 prisoners taken were German naval personnel. 2. NAVAL. An enemy convoy of 3 ships escorted by destroyers bound for North africa was attacked by Liberators on the 3rd when south of Crete; results were not observed, but one ship was torpedoed by H.M. Submarine, During the night torpedo aircraft sank one ship and the following morning B. ship was seen to be on fire. 3. MILITARY. Egypt. 3rd. The main enemy concentration moved gradually west in the southern sector, enemy patrols were active and artillery exchanges took place. 3/4. United Kingdom and New Zealand troops made a slight advance in the southern sector. 4th. 2 enemy counter attacks were repulsed by the llew Zealand division and our forces continued to attack the enemy, who was still with- drawing. Russia. The Germans have gained further ground in their attack towards Stalingrad from the south west. In Caucasia, however, they have made little fresh progress either in their advance towards Crozni or in the area of the river Terek. The enemy has reached to within 25 kilo- metres northwest of Novorossisk, which is under artillery fire from the north-east, -1- Regraded Unclassified 33 4. AIR OPERATIONS. Western Front. 3/4th. There was thick cloud over Emden. 15 tons of H.E. were dropped on the estimated position of the town. 4th. 3 single Mosquitos bombed Munster, the railway station near Colo ne and Krupps Essen. 4/5th. 251 aircraft were sent to Bremen and 3 to lay mines. 11 are missing and one is down in the sea, Egypt. 2nd/3rd. Our bombers continuously attacked enemy concentrations in the Central Sector, claiming a large number of direct hits. U.S. medium bombers attacked landing grounds near El Daba and Liberators bombed Tobruk Harbour. 3rd. Our light bombers flew 202 sorties and Fighters 574. Enemy concentrations were again heavily attacked, the accuracy of bombing being confirmed by the enemy's attempts to disperse on the arrival of our bombers. 5 tanks and one armoured car were destroyed by Hurricanes, Our Fighters destroyed 3 enemy aircraft, probably destroyed 10 and damaged 8 for the loss of 12 of our own. 5. HOME SECURITY. 4th, 19 persons were killed and 28 seriously wounded by bombs dropped at dusk in the Torquay-Paignton area. 34 NOT TO BE RE-TRANSMITTED COPY NO. 13 BRITISH MOST SECRET U.S. SECRET OPTEL NO. 308 Information received up to 7 a.m., 6th September, 1942. 1. NAVAL ATTACKS ON SHIPPING. From 2nd to 4th September (inclusive) 6 ships were reported torpedoed. 2 British ships sunk off coast of PORTUGAL and 1 British ship in Canadian waters on 3rd September, a U.S. ship and a Norwegian tanker sunk northeast of TRINIDAD on 30th August, and & British ship torpedoed in GULF OF GUINEA on 2nd September. A Dutch ship was reported overdue and & U.S. ship, previously reported overdue, has arrived. 2. MILITARY EGYPT. 5th. The enemy continues his withdrawal in the Southern sector. His forces are being harassed day and night by our artillery and armoured formations and by the R.A.F. We have advanced approximately 7 miles towards QARET EL HEMEIMAT and have destroyed a large quantity of armoured vehicles and M.T. which is still being counted. In the Northern sector our patrols were active, an attempt by a small party of enemy to land from boats behind our lines and sabotage the rail- way was frustrated. All were captured. RUSSIA. In Eastern Caucasia German forces advancing along the Northern bank of the River TEREK have effected a crossing to the South with the evident intention of wheeling southeastwards towards the GROZNI oil field some 50 miles away. In Western Caucasia, the Germans have made little fresh progress in their attack towards NOVOROSSISK from the North but are approaching the town from the Northwest. 3. AIR OPERATIONS WESTERN FRONT. 4th/5th. Bremen and Focke Wulfe Works. 209 air- craft, including 133 heavy, dropped 478 tons of H.E. and incendiaries, including one 8,000 lb., 49 4,000 lb. and 105 1,900 lb. H.E. bombs. Visibility was good with no cloud and only slight haze but in the later stages of the attack, smoke obscured the objective. Fires appeared large and well concentrated. Late arrivals reported the town well alight. Photographs taken the following morning show heavy damage with fires still burning in various parts of the town and smoke rising to 20,000 feet. Regraded Unclassified 35 - 2 - 5th. 37 U.S. Fortresses dropped about 70 tons of bombs on ROUEN railway centre, where engine sheds, rolling stock, permanent way and probably a railway bridge were hit. 12 Bostons bombed HAVRE. Allied fighters provided escort and cover and destroyed 2 enemy fighters. 6 of ours are missing. Spitfires shot down one enemy aircraft off SOUTHEND. 5th/6th. Nothing of importance. EGYPT. 3rd/4th. TOBRUK was bombed and objectives in the Southern sector were attacked. About 92 sorties, including naval aircraft, were involved. 4th. 90 bomber and 270 fighter sorties were flown over the battle area. Four soparate good attacks were made on enemy forces in the Southern sector, 2 of them in support of our troops resisting counter attacks, 2 enemy aircraft were des- troyed. We lost one Hurricane. 12 enemy aircraft dropped bombs near AMIRIYA on the 4th and at night 10 operated over our landing grounds in the ALEXANDRIA area, 3 of them were destroyed. MEDITERRANEAN. 4th/5th. 2 naval aircraft attacked an enemy 6,000 ton ship previously damaged by our aircraft and beached and escorted by a destroyer. Each aircraft scored a hit, one with torpedo on the ship and the other with bomb on the destroyer's stern. Regraded Unclassified 36 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE Sept.6,1942 TO Mr. Gaston FROM Mr. Friedman Re: Consumer Spending In dollar terms, consumer spending in the second quarter of calendar 1942 was at near-peak levels. According to the Department of Commerce, total consumer expenditures on goods and services was are at an annual rate of $79 billion, a level exceeded only in the first quarter when consumer expenditures during the second spending reached the record high of $81 billion. These Expenditures quarter 2 19420 were at an annual rate more than $3 billion higher than in calendar 1941, itself a record year. Even these figures understate the seriousness of the spend- ings problem. The sharp curtailment in the production of durable goods, particularly automobiles, that has occurred since the middle of 1941 has removed important categories of consumer goods entirely from the market. The sharp rises in spending occurred despite & drop in the sales of con- first sumer durable goods from an annual rate of $11 billion in the second quarter of 1941 to $6} billion in the second quarter of 1942. Sales of non-durable goods and services have risen from an annual rate of less than $62 billion in the first quarter of 1941 to a) most $73 billion in the second quarter of 1942. Expenditures for non- durable goods and services in the second quarter of 1942 were at an annual rate more than $7 billion higher than in calendar 1941. Regraded Unclassified 37 -2- These rapid rises in the dollar volume of sales in large part reflect price increases resulting from the combination of a strong demand by consumers and a limited supply of goods. But even in physical terms, the volume of consumption is extremely high. Aside from durable goods, the supply of which has been halved, the volume of goods and ser- vices is as high as it has ever been in the history of this country, hav- ing remained stable, or even risen slightly, during 1941 and the first half of 1942. Unless strong measures are taken to stem consumer spending, the prospect is that consumers will try to spend even larger amounts dur- ing the coming year. Even if wages and farm prices are kept at their present levels, consumer incomes are bound to increase as R. result of in- by consumers creased employment, lamger hours, and up-grading. Moreover, savings, cannot be expected to continue at their present abnormal levels. During the second quarter of 1942, individual savings were at the amazing rate of $24 billion per year. - about $5 billion higher than the highest pre- vious, recorded level. The figures of the Securities and Exchange Commission reveal that much of this saving WELS in extremely liguid form. Almost one-third of All individual saving took the form of increases in currency and bank deposits. Savings of this type are probably transitory, having been accumulated by individuals who have not yet ad justed their standard of living to their larger incomes. The combination of increasing incomes, on the one hand, and reduced savings, on the other, inevitably spells an attempted spendings boom of unprecedented magnitude, unless strong stops are taken immediately to channel off purchasing power and to induce savings. Regraded Unclassified -3- The increased volume of purchasing power coming on the market will be faced with a sharply reduced supply of goods and services. The increasing use of our resources for war purposes will necessarily leave less to satisfy consumer demands. Even if war expenditures do not exceed the budget estimates, the volume of goods and services available to consumers in terms of present prices will decline from $79 billion in the second quarter of calendar 1942 to less than $67 billion in the second quarter of calendar 1943. It is already clear that the budget estimates will be exceeded, and that, as a consequence, even less will be available for civilians. Regraded Unclassified TABLE X 1 38 Actual consumer expenditures: seasonally adjusted annual rates Year and Current Prices First quarter, 1941, prices quarter Total Consumer expenditures on Consumer expenditures on consumer Durable Non-durable non-durable goods and expenditures goods goods and services services (billions of dollars) lendar 1941 Quarter I 72.8 10.9 61.9 61.9 # II 75.6 11.1 64.5 63.1 # III 78.1 10.4 67.7 64.2 M IV 76.6 8.8 67.8 62.2 lendar 1942 Quarter I 80.6 7.3 73.3 65.4 II 78.8 6.5 72.3 63.0 Survey of Current Business, August, 1942, P. 14. Figures in current prices deflated by Bureau of Labor Statistics cost of limits index number. TABIA 2 Prospective supply of consumer goods at August, 1942, prices: seasonally adjusted annual rates Year and quarter Total supply of consumer goods (billions of dollars) Calendar 1942 Quarter III 73.0 . IV 69.0 Calendar 1943 Quarter I 68.5 - II 66.5 1/ Estimates by Oscar Gass. 39 September 7, 1942 Herbert Gaston came to our house in Washington tonight with a letter which I was to send to George. I read it and didn't like it - I mean I liked the letter but I didn't like the 1dea of sending it, particularly in view of the fact that the President omitted saying anything about the spendings tax. Gaston told me he thought George had had a meeting Sunday afternoon with the Democratic members of his Committee. So I went upstairs and got George on the phone, and he said, "Yes." I asked him if he had anything he wanted to say, and he said, "Yes." He said that he had gotten all the Democratic members of his Committee together with the exceptions of Senator Walsh and Senator Barkley, and none of them favor the principle of the spendings tax, and that the various members had various ideas. He said that they had taken great offense at what the President had said about their being slow on the tax bill, and that they would go ahead now and finish voting on the tax bill within the next couple of days, and get it into the hands of the drafting experts. He said also that they had been influenced by the fact that they had talked with Doughton and several other members of the Ways and Means Committee who said they couldn't dream of considering the spendings tax without having hearings. (We all made a great mistake by not talking with Doughton and Jere Cooper. It was an oversight but a stupid one.) I went downstairs and reported the conversation to Gaston, and said, "There 18 no use sending any letter now," and Herbert Gaston agreed with me. Regraded Unclassified 9-7-42 ASSISTANT SECRETARY OF THE TREASURY WASHINGTON To H. M. Jr.: Here is a rough draft of a letter. Griswold has worked with me on revising it. I think it might help. I want to suggest to Randolph that he asked George to call in some people from other Departments and agencies before the Committee votes. I think we might get Henderson, Lubin and Loch Currie to help us and at least stall a decision to let the leaven work. The Times-Herald today indicates LaFollette is swinging to our side. Mrs. on the Blue network Twday. Chic P.S.- Randaph had 15-minate ananged it. 41 The Honorable Walter F. George, Chairman Commitee on Finance United States Senate My dear Senator George: Supplementing the brief statement I made when I appeared before the Fiance Committtee on Thurday of last week and the later statements of Mr. Paul and his associates on the subject of the spendings tax proposed by the Treasury Department, I desire to express again to you and through you to the members of the Committee my very great concern with respect to the consumer spending and its effect on the cost of living and the problem of financing the war. So great is my concern over this problem that I felt compelled to issue & statement 66 the public on Saturday, a copy of which I an attaching to this letter. You will recall that in addressing the Committee last Thursday I said: "Revenue is not the sole purpose nor even the primary purpose of these proposals. Their main purposs is to restrict consumer spending so that, as far as possible through fiscal means, we may avoid the perils of inflation in the huge financing program we have ahead of us." In my statement on Saturday I said that the Nation as a whole is now spending at a rate far greater than a war economy Regraded Unclassified 41 The Honorable Walter F. George, Chairman Committe on Finance United States Senate My dear Senator George: Supplementing the brief statement I made when I appeared before the Fiance Committtee on Thurday of last week and the later statements of Mr. Paul and his associates on the subject of the spendings tax proposed by the Treasury Department, I desire to express again to you and through you to the members of the Committee my very great concern with respect to the consumer spending and its effect on the cost of living and the problem of financing the war. So great is my concern over this problem that I felt compelled to issue a statement 66 the public on Saturday, a copy of which I an attaching to this letter. You will recall that in addressing the Committee last Thursday I said: "Revenue is not the sole purpose nor even the primary purpose of these proposals. Their main purpost is to restrict consumer spending so that, as far as possible through fiscal means, we may avoid the perils of inflation in the huge financing program we have ahead of us." In my statement on Saturday I said that the Nation as a whole is now spending at a rate far greater than 8. war economy Regraded Unclassified (2) 42 can afford. In his message to the Congress yesterday the President made plain in these words the urgency of finding a solution to this problem: "But even if the process of stabilization of all prices and all wages at present levels were to be brought about, therecwould still rremain the great upward pressure on the cost of living created by the vast amount of purchasing power which has been earned in all sections of the country. The National income has been increasing since January 1, 1941, at the average rate of 2% a month. This purchasing power now exceeds by an estimated twenty billions the amount of goods which will be available for purchase by civilians this year. The result obviously is that people compete more and more for the available supply of goods; and the pressure of this great demand compared with the small supply--which will become smaller and smaller-- continually threatens to disrupt our whole price structure." The facts of the rate at which consumer spending is now actually going on abundantly support the President's statement and his appeal for action. Department of Commerce figures show that expenditures in April, May and June of this year were at an annual rate three billions higher than in the calendar year 1941, which was itself a record high expenditure year. But this comparison includes consumer durable goods such as automobiles and mechanical appliances which are not now available. Comparison of purchases of non-durable goods and services shows that they have risen from an annual rate of less than 62 billions in the first quarter of 1941 to almost 73 billions in the second quarter of 1942. Expenditures for these available consumer goods in the second quarter of this year were at a rate 7 billions higher than for the record year 1941. (3) 43 The supply of goods simply will not be available for us to continue expenditures at this rate. It is estimated that there will be a drop of not less than 12 billiohs on an annual basis in the supply of goods available in the second quarter of 1943 as compared to the same quarter in 1942. We have to choose whether the asjustment between an in- creasing demand and a shortening supply is to be made by the painful, unequal and costly method of inflation-- with all then injustice and unrest, the hardships upon the poor and those this with small fixed incomes-which method will ,entail, or is to be made through the adoption of adequate methods, including fiscal methods, to acheive a less expensive and less perilous solution. It is to accomplish this result that we have proposed the spendings tax. That tax combines the merits of an increase in the income tax with those of a sales tax, without the demerits of either. It strikes squarely at the major source of economic pressure. It takes money directly out of the spending stream, and it gives our citizens an inducement not to spend so that much more of the spending pressure will be held back. I have heard of no other proposal which deals 80 straightforwardly and so effectively with the problem which confronts us. The extreme gravity of the situation requires 44 (4) the fullest consideration of a fiscal program which will provide a frontal attack against the enemy of inflation. It is a problem that we cannot evade. It cannot be met by any easy or half-way measures. Sincerely, 45 AM ERICAN WASHINGTON STATE THE DIRECTOR GENERAL PAN AMERICAN UNION WASHINGTON, D.C. September 7, 1942 My dear Mr. Secretary: Permit me to congratulate you on the admirable statement on taxation which I am certain will contribute much to the enlightenment of public opinion. I beg to remain, my dear Mr. Secretary, Very sincerely yours, Mome L. S. Rowe Director General Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Washington. 46 HOLD FOR RELEASE HOLD FOR RELEASE HOLD FOR RELEASE September 7, 1942. CONFIDENTIAL: To be hold in STRICT CONFIDENCE end no portion, synopsis or intimation to be published or given out until the READING of the President's Message has begun in the Sunate or the House of Representatives. Extreme care must therefore be exercised to avoid pre- mature publication. STEPHEN EARLY Secretary to the President TO THE CONGRESS OF THE UNITED STATES: Four months ago, on April 27, 1942, I laid before the Congress B seven-point national economic policy designed to stabilize the domestic economy of the United States for the period of the war. The objective of th t program was to prevent any substantial further rise in the cost of living. It is not necessary for me to enumerato again the disastrous results of a runaway cost of living -- disastrous to all of us, farmers, laborers, businessmen -- the nation itself. When the cost of living spirals upward, everybody becomes poorer, because the money he has and the money be earns buys so much less. At the same time the cost of the war, paid ultimately from taxes of the people, is needlessly increased by many billions of dollars. The national debt, at the end of the war, would become unnecessarily greater. Indeed, the prevention of a spiraling domestic economy is a vital part of the winning of the war itself. I reiterate the seven-point program which I presented April 27, 1942: 1. To keep the cost of living from spiraling upward, we must tax heavily, and in that process keep personal and corporate profits at & reasonable rate, the word "reasonable" being defined at a low level. 2. To keep the cost of living from spiraling upward, we must fix coilings on the prices which consumers, retailers, wholesalers and manufacturers pay for the things they buy; and ceilings on rents for dwellings in all areas affected by war iniustries. 3. To keep the cost of living from spiraling upward, we must stabilize the remuneration received by individuals for their work. 4. To keep the cost of living from spiraling upward, we must stabilize the prices received by growers for the products of their lands. 5. To keep the cost of living from spiraling upward, we must encourage all citizens to contribute to the cost of winning this war by purchasing War Bonds with thoir ournings instead of using those eurnings to buy articles which are not essential. Regraded Unclassified 17 - 2 - 6. To keep the cost of living from spiraling upward, we must ration all essential commodities of which there is a scarcity, 80 that they may be distributed fairly among consumers and not merely in accordance with financial ability to pay high prices for them. 7. To keep the cost of living from spiraling upward, we must discourage credit and installment buying, and encourage the paying off of debts, mortgages, and other obligations; for this promotes savings, retards excessive buying and adds to the amount available to the creditors for the purchase of Viar Bonds, In my message of four months ago, I pointed out that in order to succeed in our objective of stabilization it was necessary to move on all seven fronts at the same time;but that two of them called for legislation by the Congress before action could be taken. It was obvious then, and it is obvious now, that unless those two are realized, the whole objective must fail. These are points numbered one and four: - namely, an adequate tax program, and a law permitting the fixing of price ceilings on farm products at parity prices. I regret to have to call to your attention the fact that neither of these two essential pieces of legislation has as yet been enacted into law. That delay has now reached the point of danger to our whole economy. However, we are carrying out, by executive action, the other parts of the seven-point program which did not require Congressional action. Price ceilings have been fixed on practically all commodities (other than certain exempted agricultural products), and on rents in war production areas of the United States. This process of keeping prices and rents at reasonable levels constitutes one of the most far-reaching economic steps that this nation has ever taken in time of peace or war. Our experience during the last four months has proved that general control of prices is possible - but only if that control is all inclusive. If, however, the costs of production, including labor, are left free to rise indiscriminately, or if other major elemonts in the costs of living are left unregulated, price control becomes impossible. If markets are flooded with purchasing power in excess of available goods, without taking adequate measures to siphon off the excess purchasing power, price control becomes likewise impossible. Our entire offort to hold the cost of living at its present level is now being sepped and undermined by further increaso farm prices and in wages, and by an ever-continuing pressure on prices rosulting from the rising purchasing power of our people. Annual wage and salary disbursements have increased from 43.7 billion dollars in 1939 to an estimated 75 billion dollars in 1942. This represents an increase of 71%. To obtain a full appreciation of what that increase means, we should remember that 75 billion dollars is more than our total national incomo was during any single year in the 1950's. Due to constantly increasing employment, overtime, and wage rato increases, the annual wage and salary bill for the entire country has been rising by more than a billion dollars a month. It is impossible for the cost of living to be stabilized while farm prices continue to rise. You cannot expect the laborer to maintain a fixed wage level if everything he wears and eats begins to go up drastically in price. On the other hand, it 1a impossible to keep any prices stable - form prices or other prices if wage rates, one of the most important elements in the cost of production, continue to increase. Regraded Unclassified 48 - 5 - But even if the process of stabilization of all prices and wages at present levels were to be brought about, there would still remain the great upward pressure on the cost of living created by the vast amount of purchasing power which has been earned in all sections of the country. The national income has been increasing since January 1, 1941, at the average rate of 2% each month. This purchasing power now exceeds by an estimated twenty billions the amount of goods which will be available for purchase by civilians this year. The result obviously is that people compete more and more for the available supply of goods; and the pressure of this great demand compared with the small supply -- which will become smaller and snaller - continually threatens to disrupt our whole price structure. A recent study by the Bureau of Lator Statistics has shown very strikingly how much the incomes of the average of families have gone up during the first quarter of 1942. If we assume that the income for the first quarter of 1942 is a fair basis for estimating what the family income will be for the entire year, the results of the study show that whereas less than one-fourth of all families in the United States received as mich as $2,500 in 1941, more than one-third will have $2,500 or more in 1942. This shows how much the purchasing power of the average American family has gone up as a result of war production and how essential it is to control that purchasing power by taxation and by investment in war bonds. We also know that as the war goes on there will not be an adequate supply of all civilian goods; that only through strict rationing, wherever necessary, will these goods be equitably dis- tributed. We are determined that no group shall suffer a shrinkage of its normal quota of basic necessitius because some richer group can buy all the available supply at high prices. In normal peace times the ordinary procusses of collective bargaining are sufficient in themselves. But in war times and particularly in times of greatly increasing prices, the Government itsulf nos & very vital interest in seeing to it that wages are kept in balance with the rest of the economy. It is still the policy of the Federal Government to encourage free collective bargaining between employers and workers; and that policy will continue. Owing to the fact that costs of production are now, in so many cases, being passed on to the government, and that 50 large a percentage of profits would be taken away by taxation, collective burgaining between employers and employees has changed a great deal from what it was in peace times. In times of danger to our economy the government itself must step into the situation to see to it that the processes of collective bargaining and arbitra- tion and conciliation are not permitted to break up the balances between the different economic factors in our system. War calls for sucrifice. Har askes sacrifice a privilege. That sacrifice will have to be expressed In terms of a lack of many of the things to which we all have become accustomed. Workers, farmers, white collar puople and businessmen must expect that. No one can expect that, during the war, he will always be able to buy what he can buy today. If We an to keep wages effectually stabilized, it becomes imperative, in fairness to the worker, to keep equally stable the cost of food and clothing and shelter and other articles used by workers. Prices and runts should not be allowed to advance so drustically whead of wage rates that the real wages of workers as of today -- their ability to buy food and clothing and medical care -- will be out down. For if the cost of living gous up as fast is It is threatening to do in the immediate future, it will be unjust, in fact impossible, to deny workers rises in wages which would must at least if part of that increase. Regraded Unclassified 49 The cost of all food used by wage carners -- controlled and uncontrolled -- has been going up at the rate of 12% per month since the price ceilings were set in May, 1942. If this rise should be permitted to continue, the increased cost of food to wage earners next May would be moro than 15% over the lovel which existed when the coilings were set, This would be equal to imposing a 15% sales tax on all food purchased by wage earners. Obviously no one would consider imposing such & tax. This drastic increase has been oncsed, and will be caused, chiefly by the fact that a number of food commodities are exempt under existing law. In the CASO of these exampt commodities the increases are even nore startling. The cost of such food used by wage carners has been rising at an average of 3.5 por month since May 1, 1942. Prices received by farmers have risen 85% since the outbreak of the war in September, 1939, and these prices are con- tinuing to risc. Cash farm income, including government payments, has increased from 8.7 billion dollars in 1939 to substantially more than 15 billion dollars in 1942. This is an increase of about 75%. The movement of uncontrolled food prices since May 18, 1942, the date when price regulation became effective, has been 80 drastic as to constitute an imediate threat to the whole price structure, to the entire cost of living, and to any attempt to stabilize wages. Within two months after the date that price regulation became effective, the prices of controlled foods actually fell 7/10 of 1%. But uncontrolled foods advanced 7.3% during the same period, and are still going up. To give some specific examples: From May to August of this year round steak and pork chops, which are controlled, showed a slight docline; but during the same period lamb, which was uncon- trolled up to July, advanced more than 10%, and chickens have advanced more than 16%. To take another example: Lard, which is a controlled product, dropped noarly 5%; whereas butter, which is uncontrolled, went up more than 6% or twice the normal seasonal rate. Oranges have gone up more than 25%, although the normal seasonal increase is only about 6 or 7% Uncontrolled agricultural commodities include some of the most important of the foods and include the grain foods necessary for livestock. When you consider that in this category are whoat, corn, oats, barley, ryo, dry boans, cotton, sweet potatoes, apples, shoep, butter fat, wholesale milk, chickens, eggs and oranges, you can realize how important these products are to the pocketbook of the housewife. The greatest danger is in dairy products, which are, as you know, most important items in the American diet. Butter, cheese or evaporated milk are exempt under the Price Control Act. The prices for these have been going up so fast that they constitute a serious threat to An adequnte supply of fluid milk. Unless we are able to get control of butter, cheese and other dairy products in the very near future, the price of milk in large cities is certain to go up. Regraded Unclassified - 5 - If wages should be stabilized and farm prices be per- 50 mitted to rise at any rate like the present rate, workers will have to bear the major part of the increase. This we cannot ask. The Congress must realize that unless the existing control over farm prices is strengthened, we must abandon our efforts to stabilize wages and salaries and the cost of living. If that occurs, workers and formers alike will not only suffer a reduction in real income, but will bring upon themselves and the Nation the unparalleled disaster of unchecked inflation. The reason why price ceilings have not already been imposed on all food products is, no you know, that paragraph 3 of the Emergency Price Control Act prohibits such ceilings until farm prices as a whole have gone up beyond pority prices -- far beyond -- as high es an average of 16% beyond. Although that restriction upon establishing ceilings for farm products usually is referred to as the 110% of parity limitation, it in much worse than that, The statute provides other limitations which are more drastic. Ceilings cannot be imposed, under the statute, on any product at e level below the market price on October 1, 1941, or December 15, 1941, or the average price for the period July 1, 1919 to June 30, 1929, or below 110% of current parity, whichever of those four levols is highost, As a result, the lowest average level for all farm commodities at which ceilings may by imposed is not 110%, but 116% of parity -- somo of the commodities going almost as high as 150% of parity. Even more important is the psychological effect of such unfair privilege. It provides fuel for fires of resentment against farmers as a favored class. After all, parity 18, by its very definition, a fair relationship botween the prices of the things farmers soll and the things they buy. Calculations of parity must include all costs of production including the cost of labor, As a result parity pricos may shift every time wago rates shift. Insisting that the coilings on no farm commodity shall evor be lower than 110% of parity is asking for more than e fair price relationship wit other rices. In fact, the limitations on agricultural coilings are now being cited by other grours as a reason for resisting economic controls that are needed in their own fields. The limitations will be a rellying point for such opposition as long es they are in offect. As I urged in my message of April 27, 1942, "the original and excellent objective of obtaining parity for the farmors of the United States should be restored". Our policy with respect to farm products should be guided by three principles: First, to hold the line against inflationary price increases. Second, to get the required production of necessary farm products. Third, to maintain the principle of parity for agriculture. Agricultural ceilings should be permitted at either parity or at the price levels which prevailed at some recont date, whichever in higher. In most cases the formula would prescrve the general structure of wholessle and rotail price controls, and would also call out the volume of production needed. Also, it would preserve the parity principle. In regard to increasing the total of our food production, one of the worrios that a farmer has today is the shortage of labor for cultivating and harvesting crops. The time is soon coming when in many parts of the country we shall have to use seasonally the help of women and grown young poople. I fool certain the nation will cooperate wholeheartedly. It not only would be unfair to labor to stabilize wages and do nothing about the coat of food; it would he equally unfair to the farmer. For we must all remember that the farmer's wife buys many articles of food at the store for the use of her own family, and high prices hurt her pockotbook as much no that of the city housewife. What is needed, therefore, is an over-all stabilization of prices, salaries, wages and profite, That is necessary to the continued production of planes and tanks and ships Regraded Unclassified 51 - 6 - present constantly increasing rate, We cannot hold the actual cost of food and clothing down to approximately the present level beyond October first, But no one can give any assurances that the cost of living can be hold down after that date. Therefore, I ask the Congress to pass legislation under which the President would be specifically authorized to stabilize the cost of living, including the price of all farm commodities. The purpose should be to hold farm prices at parity, or at levels of a recent date, whichever is higher. I ask the Congress to tako this action by the first of October. Inaction on your part by that date will leave no with an inescapable responsibility to the people of this country to see to it that the wer effort is no longer imperiled by threat of economic chaos. In the event that the Congress should fail to act, and act adequately, I shall accept the responsibility, and I will act. At the same time that farm prices are stabilized, wages can and will be stabilized also. This I will do. The President has the powers, under the Constitution and under Congressional Acts, to take measures necessary to avort B. disaster which would interfere with the winning of the war. I have given the most thoughtful consideration to meeting this issue without further reference to the Congress. I have determined, however, on this vital matter to consult with the Congress. There may be those who will say that, if the situation is as grave as I have stated it to be, I should use my powers and act now. I can only say that I have approached this problem from every angle, and that I have decided that the course of conduct which I am following in this case is consistent with my senso of responsibility as President in time of war, and with my doop and unalterable devotion to the processes of democracy. The responsibilities of the President in war time to protect the Nation are very gravo. This total war, with our fighting fronts all over the world, makes the use of executive power far more essential than in any previous war. If wo wore invadod, the poople of this country would expect the President to use any and all means to repol the invader. The Revolution and The War Betwoon The States were fought on our own soil but today this war will be won or lost on other continents and remoto seas. I cannot tell what powers may have to be exercised in order to win this war. The American people can be suro that I will use my powers with a full sense of my responsibility to the Constitution and to my country. The Amorican people can also bo suro that I shall not hesitato to uso every power vested in mo to accomplish the dofoat of our onemios in any part of the world where our own safety demands such defect. Whon the war is won, the powers under which I act automatically revert to the people - to whom they belong. Regraded Unclassified 52 - 2 In March and April, 1933, this nation faced a threaten- ing domestic situation calling for the most drastic measures, The Congress, alive to the needs of that day, formulated and enacted whatever was required to do the job before it - without long debate, without party politics and without heed to the pressures of any special group looking for advantages for itself. I need not argue the point that the situation facing the nation today is infinitely more critical than it was ton years ago, We are fighting a war of survival, Nothing can yield to the over-all necessity of winning this war, and the winning of the war will be imperilled by a runaway domestic economy. As a part of our general program on farm prices, I recommend that Congress in due time give consideration to the advisability of legislation which would place a floor under prices of farm products, in order to maintain stability in the farm market for & reasonable future time. In other words, we should find a practicable method which will not only enable us to place a reasonable ceiling or maximum price upon farm products but which will enable us also to guarantee to the farmer that he would receive a fair minimum price for his product for one year, or even two years or whatever period is necessary after the end of the war, Every farmer remembers what happened to his prices after the last war. No can, I am sure, if we act promptly and wisely, stabilize the farmers' economy so that the post-war disaster of 1920 will not overtake him again. The farmer, instead of looking forward to a new collapso in farm prices at the end of the war, should be able to look forward with assurance to receiving a fair minimum price for one or two years after the war, Such a national policy could be established by legislation. In computing parity, WU should continue to use the com- putations of the Bureau of Agbicultural Economies made under the law as it stands today. And in determining whether a commodity has reached parity, wu should include all the bene- fits received by the farmer from his government under the AAA program, allocable to the particular commodity. For it is unfair to give a Parmer a parity price, and, in addition, to pay him bunefits which will give him far more than parity. I have confidence that the American farmer who has been doing so much in the battle of production of food will do as much in this struggle against economic forces which make for the disaster of inflation; for nobody knows butter than the farmer what happens when inflationary, wartine booms are permitted to become post-war panics. With respect to point seven of the program of April 27, 1942, we have made certain credit rulings designed to curtail unnecessary buying; and whatover else has to be done along these lines will be done. With respect to point six, rationing is now in effect on somo commodities, and, when necessary, will be extended to others. But with respect to point one - a fair tax program - that still waits upon the Congress to act. One of the most powerful weapons in our fight to stabilize living costs is taxation. It is a powerful weapon because it relucus the competition for consumers' goods - especially scarce foods. Regraded Unclassified 53 - 8 - The cooperation and self-restraint of the whole nation will be required to stabilize the cost of living. The stabilization of the cost of living cannot be maintained without heavy taxes on everyone except persons with very low incomes. With such increases in the tax load, unfair tax distribution becomes less and less tolerable. We can rightfully expect the fullest cooperation and self-restraint only if the tax burden is being fairly levied in accordance with ability to pay. This means that we must eliminate the tax exemption of interest on State and local securities, and other special privileges or loopholes in our tax law. It means that in the higher income brackets, the tax rate should be such as to give the practical equivalent of a top limit on an individual's net income after taxes, approximating $25,000. It means that we must recapture through taxation all wartime profits that are not necessary to maintain efficient all-out war production. Such provisions will give assurance that the sacrifices required by war are being equitably shared. Next to military and naval victory, a victory along this economic front is of paramount importance. Without it our war production program will be hindered. Without it we would be allowing our young men, now risking their lives in the air, on land, and on the sea, to return to an economic mess of our own making. The least that we at home can do for them is to see that our production increases every day so as to give them the weapons of war with which to fight, and to make sure that our economy at home continues to be one to which they can return with confidence and security. FRANKLIN D. ROOSEVELT THE WHITE HOUSE, September 7, 1942. 54 FILE COPY HOLD FOR RELEASE HOLD FOR RELEASE HOLD FOR RELEASE September 7, 1942 CAUTION: The following address of the President MUST BE HELD IN CONFIDENCE until released. NOTE: Release to editions of all newspapers appearing on the streets NOT EARLIER THAN 9:30 O'CLOCK, P.M., EWT., Monday, September 7, 1942. The same release also applies to radio announcers and news commentators. CARE MUST BE EXERCISED TU PREVENT PRELATURE PUBLICATION. STEPHEN EARLY Secretary to the President I wish that all the American people could read all the citations for various medals recommended for our soldiers, sailors and marines. I am picking out one of these citations which tells of the accomplishments of Lieutenant John James Powers, United States Navy, during three days of the battles with Japanese forces in the Coral Sea. During the first two days, Lieutenant Powers, flying a dive-bomber in the face of blasting enemy anti-aircraft fire, demolished one large enemy gunboat, put another gunboat out of commission, severely damaged an aircraft tender and a twenty thousand ton transport, and scored a direct hit on an aircraft carrier which burst into flames and sank soon after. The official citation describes the morning of the third day of battle. As the pilots of his squadron left the ready room to man their planes, Lieutenant Powers said to them, "Remember, the folks back home are counting on us. I am going to get a hit if I have to lay it on their flight deck". He led his section down to the target from an altitude of 18,000 feet, through a wall of bursting anti-aircraft shells and swarms of enemy planes. He dived almost to the very deck of the enemy carrier, and did not release his bomb until he was sure of a direct hit. He was last seen attempt- ing recovery from his dive at the extremely low altitudo of two hundred feet, amid a terrific barrage of shell and bomb fragments, smoke, flame and debris from the stricken vessel. His own plane was destroyed by the explosion of his own bomb, But he had made good his promise to "lay it on the flight dock". I have received a recommendation from the Secretary of the Navy that Licutonant Jamos Powers, of New York City, missing in action, be awarded the Medal of Honor. I hereby and now make this award. You and I are "the folks back home" for whose pro- tection Lieutenant Powers fought and repeatedly risked his life. He said that we counted on him and his men, We did not count in vain. But have not those mon a right to be counting on us? How are we playing our part "back home" in winning this war? Regraded Unclassified 55 S - 2 - The answer is that we are not doing enough. Today I sent a message to the Congress, pointing out the overwhelming urgency of the serious domestic economic crisis with which we are threatened. Some call it "inflation", which is a vague sort of term, and others call it a "rise in the cost of living", which is much more easily understood by most families. That phrase, "the cost of living", means essentially what a dollar can buy. From January 1, 1941 to May of this year, the cost of living went up about 15%. At that point we undertook to freeze the cost of living. But we could not do a complete Job of it, because the Congressional authority at the time exempted a large part of farm products used for food and for making clothing; though several weeks before, I had asked the Con- gress for legislation to stabilize all farm prices. At that time I had told the Congress that there were seven elements in our national economy, all of which had to be controlled; and that if any one essential element remained exempt, the cost of living could not be held down. On only two of these points -- both of them vital however -- did I call for Congressional action. These were, first, taxation; and, second, the stabilization of all farm prices at parity. "Parity" is a standard for the maintenance of good farm prices. It was established as our national policy in 1933. It means that the farmer and the city worker are on the same relative ratio with each other in purchasing power as they were during a period some thirty years ago - at a time when the farmer had a satisfactory purchasing power. 100% parity, therefore, has been accepted by farmers as the fair standard for their prices. Last January, however, the Congress passed a law forbidding ceilings on farm prices below 110% of parity on some commodities. On other commodities the ceiling was even higher, so that the average possible ceiling is now about 116% of parity for agricultural products as a whole. This act of favoritism for one particular group in the community increased the cost of food to everybody - not only to the workers in the city or in the munitions plants, and their families, but also to the families of the farmers themselves. Since last May, ceilings have been set on hearly all commodities, rents and services, except the exempted farm products. Installment buying has been effectively controlled. Wages in certain key industries have been stabilized on the basis of the present cost of living. It is obvious, however, that if the cost of food continues to go up, as it is doing at present, the wage earner, particularly in the lower brackets, will have a right to an increase in his wages. That would be essential justice and & practical necessity. Regraded Unclassified 56 - 3 - a Our experience with the control of other prices during the past few months has brought out one important fact - the rising cost of living can be controlled, providing all elements making up the cost of living are controlled at the same time. We know that parity prices for farm products not now controlled will not put up the cost of living more than a very small amount; but that if we must go up to an average of 116% of parity for food and other farm products - which is necessary at present under the Emergency Price Control Act before we can control all farm prices - the cost of living will get well out of hand. We are face to face with this danger today. Let us meet it and remove it. I realize that it may seem out of proportion to you to be worrying about these economic problems at a time like this when we are all deeply concerned about the news from far distant fields of battle. But I give you the solemn assurance that failure to solve this problem here at home - and to solve it now will make more difficult the winning of this war. If the vicious spiral of inflation ever gets under way, the whole economic system will stagger. Prices and wages will go up so rapidly that the entire production program will be endangered. The cost of the war, paid by taxpayers, will jump beyond all present calculations. It will mean an un- controllable rise in prices and in wages which can result in raising the over-all cost of living as high as another 20%. That would mean that the purchasing power of every dollar you have in your pay envelope, or in the bank, or included in your insurance policy or your pension would be reduced to about eighty cents. I need not tell you that this would have a demoralizing effect on our people, soldiers and civilians alike. Over-all stabilization of prices, salaries, wages and profits is necessary to the continued increasing production of planes and tanks and ships and guns. In my message today I have told the Congress that this must be done quickly. If we wait for two or three or four or six months it may well be too late. I have told the Congress that the Administration can not hold the actual cost of food and clothing down to the present level beyond October first. Therefore, I have asked the Congress to pass legis- lation under which the President would be specifically authorized to stabilize the cost of living, including the price of all farm commodities. The purpose should be to hold farm prices at parity, or at levels of a recent date, whichever is higher. The purposo should also be to keep wages at a point stabilized with today's cost of living. Both must be regulated at the same time; and neither can or should be regulated without the other, At the same time that farm prices are stabilized, I will stabilize wages. This is plain justice and plain common sense, I have asked the Congress to take this action by the first of October. We must now act with the despatch which the storn necessities of war require. I have told the Congress that inaction on their part by that date will leave me with an inescapable responsibility to the people of this country to see to it that the war effort is no longer imperiled by the threat of economic chaos, As I said in my message to the Congress: In the event that the Congress should fail to act, and act adequately, I small accept the responsibility, and I will act. Regraded Unclassified 57 - 4 - 8 The President has the powers, under the Constitution and under Congressional Acts, to take measures necessary to avert a disaster which would interfere with the winning of the war. I have given the most thoughtful consideration to meeting this issue without further reference to the Congress. I have determined, however, on this vital matter to consult with the Congress. There may be those who will say that, if the situation is as grave as I have stated it to be, I should use my powers and act now. I can only say that I have approached this problem from every angle, and that I have decided that the course of conduct which I am following in this case is consistent with my sense of responsibility as President in time of war, and with my deep and unalterable devotion to the processes of democracy. The responsibilities of the President in war time to protect the Nation are very grave. This total war, with our fighting fronts all over the world, makes the use of executive power far more essential than in any previous war. If we were invaded, the people of this country would expect the President to use any and all means to repel the invader. The Revolution and the War between the States were fought on our own soil but to-day this war will be won or lost on other continents and remote seas. I cannot tell what powers may have to be exercised in order to win this war. The American people can be sure that I will use my powers with a full sense of responsibility to the Constitution and to my country. The American people can also be sure that I shall not hesitate to use every power vested in ne to accom- plish the defeat of our enemies in any part of the world where our own safety demands such defeat. When the war is won, the powers under which I act will automatically revert to the people - to whom they belong. I think I know the American farmers. I know that they are as wholehearted in their patriotism as any other group. They have suffered from the constant fluctuations of farm prices - occasionally too high, more often too low. Nobody knows better than farmers the disastrous effects of war time inflationary booms and post-war deflationary panics. I have today suggested that the Congress make our agricultural economy more stable. I have recommended that in addition to putting ceilings on all farm products now, we also place a definite floor under those prices for a period beginning now, continuing through the war, and for as long as necessary after the war. In this way we will be able to avoid the collapse of farm prices which happened after the last war. The farmors must be assured of a fair minimum price during the re-adjustment poriod which will follow the excessive world food demands: which now prevail. We must have somo floor under farm prices, as we have under wages, if we are to avoid the dangers of a post-war inflation on the one hand, or the catastrophe of a crash in farm prices and wages, on tha other. Regraded Unclassified 58 -5- Today I have also advised the Congress of the importance of speeding up the passage of the tax bill. The Federal Treasury in losing millions of dollars a day be- cause the bill has not yet been passed. Taxation is the only practical way of preventing the incomes and profits of in- dividuals and corporations from getting too high. I have told the Congress once more that all net individual incomes, after payment of all taxes, should be limited effectively by further taxation to a maximum net in- come of $25,000 a year. And it is equally important that corporate profits should not exceed B. reasonable amount in any case. The nation must have more money to run the War, People must stop spending for luxuries. Our country needs 6 far greater share of our incomes. For this 10 a global war and it will cost this nation nearly one hundred billion dollars in 1943. In that global war there are now four main areas of combat; and I should like to speak briefly of them, not in the order of importance, for all of them are vital and all of them inter-related. (1) The Russian front. Here the Germans are still unable to gain the smashing victory which, almost a year ago, Hitler announced he had already achieved. Germany has been able to capture important Russian territory. Nevertheless, Hitler has been unable to destroy a single Russian Army; and this, you may be sure, has been, and still is, his main objective. Millions of Gorman troops seem doomod to spend another cruel and bitter winter on the Russian front. The Russians are killing more Nazis, and destroying more airplanes and tanks than are being smashed on any other front. They are fighting not only bravely but brilliantly. In spite of any setbacks Russia, will hold out, and with the help of her Allies will ultimately drive every Nazi from her soil. (2) The Pacific Ocuan Area. This area must be grouped together as a whole - every part of it, land and soa. We have stopped one major Japanese offensive; and have inflicted heavy losses on their fleet. But they still possess great strength; they seck to keep the initiative; and they will un- doubtcdly strike hard again. We must not over-rate the 1m- portance of our successes in the Solomon Islands, though we may be proud of the skill with which these local operations were conducted. At the same timo, we need not under-rate the significance of our victory at Midway. There WG stopped the major Japanese offensivo. (5) In the Meditorrancan and the Middle East area the British, together with the South Africans, Australians, New Zealendors, Indian troops and others of the United Nations, including ourselves, are fighting a desperate battle with the Germans and Itelians. The Axis powers are fighting to gain control of that area, dominate the Mediterms nn and Indian Ocean, and gain contact with the Japanese Navy. The bettle is now joined. To are well sware of our dangor, but WL are hope- ful of the outcome. (4) The European area. Here the aim is an offensive against Germany. There are at least a dozen different points at which attacks cen be launched. You, of courso, do not ex- pect me to give details of future plans, but you can rest as- sured that preparations are boing made hero and in Britain to- ward this purpose. The power of Germany must be broken on the battlefields of Europe. Regraded Unclassified - 6 - 59 Various people urge that we concentrate our forces on one or another of these four areas, although no one suggests that any one of the four areas should be abandoned. Certainly, it could not be seriously urged that we abandon aid to Russia, or surrender all of the Pacific to Japan, or the Mediterranean and Middle East to Germany, or give up an offensive against Germany. The American people may be sure that we shall neglect none of the four great theatres of war. Certain vital military decisions have been made. In due time you will know what these decisions are - and so will our enemies. I can say now that all of these decisions are directed toward taking the offensive. Today, exactly nine months after Pearl Harbor, we have sent overseas three times more men than we transported to France in the first nine months of the first World War. We have done this in spite of greater danger and fewer ships. And every week sees a gain in the actual number of American men and weapons in the fighting areas. These reinforcements in men and munitions will continue to go forward. This war will finally be won by the coordination of all the armies, navies and air forces of the United Nations operating in unison against our enemies. This will require vast assemblies of weapons and men at all the vital points of attack. We and our allies have worked for years to achieve superiority in weapons. The have no doubts about the superiority of our men. We glory in the individual exploits of our soldiers, our sailors, our marines, our merchant seamen. Lieutenant John James Powers was one of these - and there are thousands of others in the forces of the United Nations. Several thousand Americans have met death in battle. Other thousands will lose their lives. But many millions stand ready to step into their places - to engage in a struggle to the very death. For they know that the enemy is determined to destroy us, our homes and our institutions - that in this war it is kill or be killed. Battles are not won by soldiers or sailors who think first of their own personal safety. And wars are not won by people who are concerned primarily with their own comfort, their own convenience, their own pocket-books. We Americans of today bear the gravest of responsi- bilities. All of the United Nations share them, All of us here at home are being tested for our fortitude, for our selfless devotion to our country and our cause. This is the toughest war of all time. We need not leave it to historians of the future to answer the question whether we are tough enough to meet this unprecedented challenge. We can give that answer now. The answer is "yes". 60 NOT TO BE RE-TRANSMITTED COPY NO. 13 BRITISH MOST SECRET U.S. SECRET OPTEL No. 309 Information received up to 7 A.M., 7th September, 1942. 1. NAVAL Two Ruesian gunboats, converted 350 ton steamers, were blown up by their crews on the 2nd since they were unable to break out of the SEA OF AZOV. 2. MILITARY EGYPT. 5th. Our mobile columns from the East and South continued to harass the retiring enemy throughout the day. The bulk of his forces in the Southern sector have withdrawn West of the minefields and now appear to be on the general line DEIR EL MUNASSIB - QARET EL HEMEIMAT. 3. AIR OPERATIONS WESTERN FRONT. 6th. 41 U.S. Fortresses droppèd about 64 tons of H.Br on the Potes airframe factory at MEAULT. Two of them are missing. They destroyed five enemy fighters, probably destroyed 13, and damaged 25. Photographs confirm numerous hits on the target. A further 13 U.S. Fortresses and 12 U.S. Bostons attacked aerodromes at ABBEVILLE and ST. OMER and 11 Bostons attacked a merchant vessel at BOULOGNE. Allied fighters provided escort and cover and probably dos- troyed 2 F.W. 190's and damaged 5 for the loss of 3 Spitfires, 1 Mosquito sent to FRANKFURT is missing. Typhoons shot down 2 Me, 210's (new type fighter-bember) over YORKSHIRE. 6th/7th. 207 aircraft were sent to DUISBURG. 9 were son mining and 5 dropped leaflets. B are missing and 1 crashed. Proliminary reports indicate no cloud at DUISBURG but ground hase. The attack is considered moderately successful. 17 Hudsone including 9 R.C.A.F. of which one 10 missing and 5 Naval Swordfish were sent to attack a merchant vessel In BOULOGNE Harbour and shipping off the FRISIAN ISLANDS. EGYPT. 4th/5th. Our aircraft bombed M.T. in the Southern Sector. 5th. Escorted light bombers scored several hito on M.T. passing through a minofield. Five fighters were lost during the day but three pilots are safe. 4. HOME SECURITY 6th/7th. Scattered bombing occurred on TEESIDE. Damage to olectri- city mains at MIDDLESBOROUGH caused a partial and temporary stoppage of industry. Regraded Unclassified 61 September 8, 1942 9:35 a.m. GROUP Present: Mr. Bell Mr. Gaston Mr. Buffington Mr. Paul Mr. Blough Mr. Schwarz Mr. Thompson Mr. Haas Mr. Graves Mr. White Mr. Kuhn Mr. Gamble Mrs. Klotz H.M.JR: I am sorry I didn't hear you on the radio, but nobody notified me. I thought you were going to telegraph me. MR. PAUL: Well, maybe I should have, but I was-- H.M.JR: Remember, that was the last-- MR. PAUL: I was struggling with a rewrite all the morning, and it was being changed on me until five minutes before. I didn't have time to do a thing. I forgot. H.M.JR: Remember? MR. PAUL: I think I did say I was going to telegraph. H.M.JR: I would like to have listened. 62 - 2 - MR. PAUL: It was in the process - you see, I had to cut it from thirty to fifteen minutes, which was some job. MR. SCHWARZ: We will have a record in a day or so if you would like it. H.M.JR: What time do you go on the Hill? MR. PAUL: Ten o'clock. H.M.JR: Paul, just to bring you up to date, I called up George last night and asked him how things were going. He said that he had met with all the Democratic members except Barkley and Walsh, and nobody in the group was in favor of the principles of this tax recommendation which we have just made. He said he had a plan of his own. He said he didn't know how good it was, but it was a gross tax exempting people, I think he said, of six hundred twelve dollars or less. I don't know how he arrived at the six hundred twelve. Then he said that they consulted with Doughton and some other people of Ways and Means, and they wouldn't hear of it unless they had a public hearing, and I said that was the last straw because all of us made a mistake here in the room that we never spoke to Doughton and Cooper. It was a grave error on our part that we didn't, but nobody-- MR. PAUL: George said he was going to talk it over with him. H.M.JR: We should have. Everybody overlooked that, and it is unfortunate. Didn't I suggest, Herbert, Doughton and Cooper tomorrow at this luncheon. didn't I? MR. GASTON: Yes, you did. H.M.JR: If they are coming, would you, between you and Stephens, pass it along? Regraded Unclassified 63 - 3 - MR. GASTON: They haven't been invited yet so I will speak to Stephens this morning about inviting them. H.M.JR: Who is to be invited? MR. GASTON: Those that have been invited are George, Barkley, and Prentiss Brown. H.M.JR: Well, I would add Doughton and Cooper-- MR. PAUL: All right. H.M.JR: ... because what is going to happen is they are going to vote us down today. He said that they want to vote the whole bill out the next two or three days and get into the drafting stage. That is what he said. So we might just as well have Doughton and Cooper here and say - well, I think by tomorrow they will have voted us down - say, "Well, here we are. Now, my attitude is, and I would like everybody else to take the same attitude, instead of having sort of a hang-dog attitude, tail between the legs - the way I feel is this, I am delighted that we had the courage and the foresight to make this recommendation. The only thing I would have regretted is that before the bill went to the drafting stage we hadn't made a suggestion like this. So, as far as I am concerned I have not only no regrets, but I am very happy that we made it, and I don't want anybody around to take the attitude that we have been licked or anything else. It is the public who will get the licking. MR. PAUL: That is right. H.M.JR: And so my head is up. MR. PAUL: There are two questions that are apt to arise. One is, what is your attitude toward the reduction of the exemptions to a thousand, where the reduction is not associated with the spendings plan? The other is, what is your attitude toward & pure and unadulterated sales tax without being hooked-- Regraded Unclassified 64 - 4 - H.M.JR: Well, Randolph, I can't answer that. I have never yet seen the recommendations that you made on the sales tax. Nobody has given them to me, and I haven't seen them. I can't - it is like we started last Monday to do these things and I said I couldn't do them that fast, and nobody has given me & copy of what you read from before the Committee when you appeared. I mean, I haven't gotten a thing. I don't know the arguments for and against it. Certainly somebody in the big staff you have got could have given me a copy to read over the week end. MR. PAUL: The arguments for and against it are all set forth in that statement of mine given the same day as yours. 'H.M.JR: Yes, but I didn't see it before, and I haven't seen it since. MR. PAUL: I am sorry. H.M.JR: So I mean, I don't know whether the arguments were good or bad, because certainly you couldn't gather it from the paper. MR. PAUL: No, the papers played it down. H.M.JR: Well, anyway, if Roy, when you leave the room will you please go out and get me the thing- will you? MR. PAUL: I will send it right in from my room. H.M.JR: I can't give you the answer on the other thing. MR. PAUL: I think the answer is pretty clear. H.M.JR: What is your answer? MR. PAUL: My answer is that we are not for a sales tax if it is not associated with some kind of Regraded Unclassified 65 - 5 - progressive spendings tax or something that takes the curse off putting that additional burden on the lower income groups without putting it anywhere else. And on the reduction of the exemptions, I think we should take the view that we are not for it un- associated with our spendings tax program because those two things, if you take those things or either of them, you select certain aspects of our program that are opposed by our only friendsin the world, the labor groups; and if you don't put in anything else, it bears down on the other group. H.M.JR: I would go along with you on that if you are cornered. MR. PAUL: I am not going to bring it up, naturally, but-- H.M.JR: I can go along with you on that. What else? MR. PAUL: Those are the two points. H.M.JR: All right. Well, let me know during the day what happens, will you? MR. PAUL: Yes, I will call you at noon. Can I call you when I get through with the morning session? H.M.JR: Yes. What? MR. BLOUGH: I just said I had nothing on my mind. H.M.JR: Lucky man. (Laughter) MR. PAUL: Here is a speech by Vandenberg. (Speech handed to the Secretary.) (Mr. Paul and Mr. Blough left the conference.) H.M.JR: Herbert? Regraded Unclassified 66 - 6 - MR. GASTON: No, I haven't anything. MR. KUHN: I haven't anything. H.M.JR: Buffington? MR. BUFFINGTON: No, sir. MR. GAMBLE: I have nothing, sir. MR. HAAS: I have nothing this morning. MR. SCHWARZ: Nothing. H.M.JR: White? MR. WHITE: You remember several weeks ago - a month ago - I spoke about the preparation of an order to take a census of foreign property owned by Americans, the American-owned property in foreign countries. H.M.JR: That goes back months, doesn't it? MR. WHITE: It originally goes back many months. At the time I spoke to you about it, I said the order would be ready within a month or six weeks, but the lawyers insisted that there was a difference between this census and the one we took for this country in that this was not going to be a Presidential order, but just a Treasury regulation. Therefore, they wanted the documents all ready before you issued the regulation, rather than issuing the document subsequent to the order. They have been working on it busily. They are now ready. The next step is to clear this with other agencies, which will probably take a week, or possibly two. There are a number of agencies who are intimately interested in the detail. We can go ahead with that if you say it is all right, unless you first want to speak to the President. Regraded Unclassified 67 - 7 - H.M.JR: No. He is not interested. MR. WHITE: Then we will go ahead with it. H.M.JR: Sure. MR. WHITE: And when the other agencies will have made such detail changes as they suggest, it will then be ready for regulation, and it will go into effect. Frederick Phillips just called Mr. Fitzgerald after he had heard that the appointment you gave him was for Thursday, and said he would like it this after- noon, if possible. H.M.JR: It is impossible. I am doing the financing for two days. For two days, I am doing the financing. MR. WHITE: I have here a letter from Puleston giving you some figures on trade between South America and Sweden. (Letter dated July 31, 1942, addressed to the Secretary.) You asked me to speak to you about it. This is part of the larger problem. We are preparing a report on all the trade to neutrals, which you might want to present before the Board of Economic Warfare. It will be ready, probably, this week. I asked Mr. Cairns, pursuant to a discussion we had a couple of weeks ago, to look over the powers of the WPB, and he prepared a memorandum which he gave me and I will pass on to you. It is a prelimi ary one which indicates that they have all the legal power one can possibly think of. As Cairns put it, one would have to think a long time before he could think of a power which they do not legally have, although they are buried in & number of orders which, in turn, refer to other laws, and 80 on. So it really would be a long task. He is writing a memo which will be ready for you. Some time before you see Mr. Phillips, inasmuch as I gather he is going to see you about this memo of Keynes, I think that you ought to spend fifteen minutes or so going over that document with me. That is all I have. Regraded Unclassified 68 - 8 - H.M.JR: O.K. What else? Tell Stephens I would like to see you before I see Phillips. Harold, you may have thought of this, or some of your associates may have, but I think, if you haven't done it - you know I suggested when the women were here that you explain this thing, the change in my position, what it meant, and 80 forth. You didn't want to do that. MR. GRAVES: At that time. H.M.JR: Yes. Now, I think not only for them, but for your whole war bond group, a careful explanation should go out over my signature to them, just where I stand, and what this means, and then what changes, if any, it would mean in the organization, and where they should direct their fire power. MR. GRAVES: Well, I think we have pretty well taken care of that. You remember you asked me to send a copy of your statement, by wire, to each administrator, and that was done. We asked, when we did that, to have their comment by mail, and we are just getting those in. They are all very friendly to your statement, and all are saying that this means simply that they have got more work to do. In that telegram, also, we told our administrators that we were planning, as soon as things got clarified a little bit more, to have a meeting of all of our administrators and chairmen, and I think that would be the better time to go into this thing further with them. H.M.JR: I would like, sometime this week, if you will give me what you and Odegard and Gamble and Kuhn think about the thing - I would like to see it this week, on how you are going to reorient yourselves. MR. GRAVES: Of course, as matters stand, I doubt that there is any occasion for us to make any change at all. I think we ought to go right ahead on our pay- roll allotment. Regraded Unclassified 69 - 9 - H.M.JR: Yes, but let's be a little bit fore- handed. You do not know what the Committee may slip you this week. MR. GRAVES: That is right. I think it would be well for us to wait until things have clarified a little more before we say anything to our people about any change in program. H.M.JR: They are not particularly disturbed in the field? MR. GRAVES: The men who have replied - I think I have about ten answers - have all considered it as good - as a thing that calls the attention of the people to the need for something more drastic; and they all say that they are going right ahead without any abatement in their efforts. I think we ought not to change any part of our program until something has happened more definitely. H.M.JR: O.K. MR. GRAVES: That seemed to be the attitude of those who have responded to our telegram. H.M.JR: Anything else? MR. GRAVES: That is all. MR. WHITE: By the way, Mr. Secretary, I would like to comment - I thought that statement that was issued by you on Sunday was an excellent one. I would like to compliment whoever prepared it. I heard several favorable comments aboutit. H.M.JR: I agree with you. I had nothing to do with it. Those two gentlemen there, between them-- (Kuhn and Gaston) MR. WHITE: I was glad to see you fight back. Regraded Unclassified 70 - 10 - MR. KUHN: Mr. Secretary, the radio boys are making little announcements with the direct quotations from the President's speeches and from that statement, bear- ing on the subject of spending, and they are sending them over this afternoon. If they are good they will be put on the Washington stations this evening. H.M.JR: Who is doing that? MR. KUHN: Callahan and his boys. MR. GASTON: There is another phase of that being worked on. H.M.JR: Taking it for granted that that is what the President meant? MR. KUHN: No, I simply thought, first of all, this reference to spending at the end of his speech, the reference to war bonds in the Congressional message, the reference to what we, on the home front, are not doing, and your references to spending. H.M.JR: I don't know whether you want to do it, or whether you should do it, or I should do it, or Gaston, but the New York Times editorial today abso- lutely misrepresented the facts. Right at the end of their editorial they said that neither the President nor the Treasury has made any recommendations which will lower the standard of living in this country - flat. Did you read it? MR. KUHN: Yes. H.M.JR: I wish - I don't think we ought to let them get away with 8. statement like that. On the one hand, they don't like my statement for many reasons, but then they come out with an absolutely - they say that neither the President nor I - nor the Treasury - has made any recommendations which will lower the standard of living. It is a falsification. 71 - 11 - MR. KUHN: There are several like that. H.M.JR: But in this thing - I don't know, talk about it with Herbert. I am perfectly willing to write 8. letter to Merz. MR. GASTON: Or Sulzberger. H.M.JR: He is in England. He is not here. But it just isn't true. Talk about it. Bell? MR. BELL: Nothing. MR. THOMPSON: On the subject of taxes, I wonder if there is & possibility of another Donald Duck next March. If so, perhaps Mr. Paul ought to get authority before this pending tax bill-- H.M.JR: I think we will just brush off Donald Duck and change the figures and use the same thing over again. That is what we will do. Dan, I will be ready for you and Haas and Buffington and Henry Murphy at ten o'clock. I would like to see Graves and Gaston a minute. 72 September 8, 1942 10:10 a.m. FINANCING Present: Mr. Bell Mr. Buffington Mr. Haas Mr. Murphy H.M.JR: George, after having a week end to think, what do you think? MR. HAAS: I think it is one of these things where you have to tie them down rather specifically that they would take care of the short-term market. They make it, and they can take care of it if they want to. If they can't give that assurance, this would ruin it, I think - even the Szymczak rate. H.M.JR: Wait a minute, George, we are talking about the wrong thing. Let's let this tax note thing go. Let's talk about the financing. MR. HAAS: On the financing-- H.M.JR: Let's do the financing first. MR. HAAS: On the financing I would make the certificates at about sixty-five - the certificates at sixty-five into May 1. H.M.JR: I am not concentrating. What did you say? MR. HAAS: The certificate, May 1, at a rate of sixty-five, and one and a quarter percent note to run to about March, '45. I think that is about two years and six months. H.M.JR: Have you got & sheet to show me? Regraded Unclassified 73 - 2 - (Mr. Haas handed chart to the Secretary.) H.M.JR: What is there around May l? Let's look at that first. When do you want to run the other note? MR. HAAS: Down to March. MR. BELL: There is a CCC on May 1 of two hundred eighty-nine million. H.M.JR: Of what? MR. BELL: May 1, of two hundred eighty-nine million. H.M.JR: That is peanuts these days. Where would this go? MR. HAAS: March '45. You will probably pull those up prior to that time. H.M.JR: I don't want to make it April. MR. HAAS: April would be pretty thin, wouldn't it? MR. MURPHY: April in '45? in MR. HAAS: Yes. MR. MURPHY: I don't think one month would make much difference there. It is pretty thin already. There is only a premium of maybe three thirty-seconds, but I don't think one month would make you or break you there. We have hitherto priced them, that is, had the maturities - distant maturities on tax dates, with the feeling that it would be better to only have to do a financing every three months at that time rather than perpetuate monthly financing throughout the whole post-war period. Regraded Unclassified 74 - 3 - H.M.JR: You are an optimist. MR. MURPHY: The President said last night that he thought 1943 was the victory year. H.M.JR: Did he say that? I did not hear him say that. He didn't say that. MR. MURPHY: He didn't say it last night, you are right, but I read it - it attributed it to the Presi- dent - I guess it was in a letter I was reading yester- day. I misspoke myself. I am optimistic though, Mr. Secretary. H.M.JR: Are you? What do you base your optimism on? MR. MURPHY: I base my optimism on the slowness but the massiveness of the roundabout method of pro- duction, the fact that we are putting five billion dollars in the end of the horn now, which only has the effectiveness of perhaps a half a billion dollars now. We have 80 much in the early stages of production that will come through; it cannot be hurried a great deal, but it will come through with a massiveness that I don't think anything the enemy has can meet when it gets there - '43, I think it was. It was very unfortunate that I said the President said it. I think I was reading yesterday, perhaps, a Kiplinger letter, in which it said that the President had never been taken in on the '42 business, that he had always maintained that '43 was the victory year. That may or may not be. I would be surprised if the war went beyond '44, but I am not a military expert. In any event, I think '45 is the post-war period, Mr. Secretary. H.M.JR: What would you rather have, tax dates? MR. BELL: Yes, as long as we can maintain it. I don't know whether we can maintain it throughout this period, but I would like to see it tax dates. Regraded Unclassified 75 - 4 - H.M.JR: Let's see what some of these people - MR. BELL: Of course, if we can get on a pay-as- you-go basis, you-- (Laughter) H.M.JR: If you get it on what kind of a basis? MR. BELL: Current pay-as-you-go, month to month basis on your taxes. H.M.JR: What have you been reading? MR. BELL: Again there is some optimism, I suppose. H.M.JR: Have you been reading Whaley-Eaton? (Laughter) MR. BELL: No, I have been reading Randolph Paul. H.M.JR: Now, Mills said three years, one and three-eighths. You didn't say how much this-- MR. HAAS: One and a quarter on this, two years and six months. H.M.JR: Now, let me see, Chris Devine said one and five-eighths, due March '47. MR. HAAS: He is out farther, yes. I quizzed him on that, you know, about the strength of that market out there. MR. BELL: That is the vacant date, too. H.M.JR: Now, Gill, the Bank of Manhattan said either December '44, or March 1945, one and a quarter. MR. HAAS: That checks-- H.M.JR: You think he is a good man, don't you? MR. HAAS: He sounded good. Regraded Unclassified 76 - 5 - H.M.JR: He agreed with you? (Laughter) MR. HAAS: It would have been better if he had left the December off and put it March. MR. BELL: It is the first time he has been down for about three years. H.M.JR: Levy says December 15,'44, one and an eighth. MR. HAAS: He is cutting it. H.M.JR: And Aldrich and his crowd said one and three-quarters, September '47. MR. BELL: What would it be, September '46, George? Is it a vacant date there? H.M.JR: September? MR. BELL: Forty-six, four years. MR. MURPHY: It is awfully thin at one and an eighth, and awfully fat at one and a quarter. MR. BELL: Oh, no. You are supposing '45 is one and a quarter - one year longer. MR. MURPHY: Pardon me, yes, I am on the wrong one. MR. BELL: Either one and a half or one and three- eighths. Dudley Mills said three years; that would be September '45, one and three-eighths. MR. HAAS: Rather than the long note market, it is safer to take a short bond - that is what Devine finally said. That is all we can get there. H.M.JR: Dan, 80 that you get my thinking straight, and I have got lots of time, nothing but time to think, I hope - I have nothing until three o'clock when the Regraded Unclassified 77 - 6 - Federal Reserve comes in. I have shoved this tax note aside for the minute. I think we ought to settle this thing first. MR. BELL: I do, too. H.M.JR: And also that you get my thinking - I haven't been impressed at all by what the Fed crowd wants to do - a great big seven or eight billion dollar money raising campaign in October and, you know, whoop-it-up stuff. I don't, and I had Ned Brown in for lunch and talked to him about it. He agreed with me that supposing you do it, it is successful, and everybody sort of sits back and says, "We have got nothing to do now that we have done that" - sit back, skip a month, and come back again. He thinks we have to do it every month. MR. BELL: He does? H.M.JR: Yes, he thinks that we have got to get better organized, go more into every community, and I don't know but that eventually we may have to merge the victory fund and the war bonds. I don't know whether we can have two committees going into each community. I have just been thinking about it. But what I am getting at now - I don't know whether you fellows agree with me - I would like to give you all I have in my mind. I do want to give the Victory Fund Committee something to sell this month if possible. Now, the suggestion was made that on the certificate we give full allotment to any non-banking subscriber and give the Victory Fund Committee maybe a week to go out and do that job. I mean, I am just throwing these things out. The other suggestion made was that if we are going to have - I meant a note - if we are going to have a certificate and a note, don't have them both come due on the same day. That is what the Chase said. MR. BELL: I like that. I would like to have the certificate payable on the twenty-first and the note on the twenty-fifth. Regraded Unclassified 78 - 7 - H.M.JR: Something like that. I also was think- ing that we might start the four hundred million bills next Monday. MR. BELL: A week from this Wednesday-- H.M.JR: I mean next Monday . - they bid on Monday, don't they? MR. BELL: That is right. H.M.JR: Let me just ask the Victory Fund - VFC - most everybody I talked to said they didn't think there was any harm in giving the fellows a week, but they didn't think they would sell anything to amount to anything on a three-year note. MR. BUFFINGTON: I don't agree with that. I think that it would not do any harm, but I think that they have evidenced that they have ability to contact a lot of corporations and a lot of funds which normally would not buy a bond like the tap two and a half and weren't particularly interested in certificates. I think they might help considerably on a note. How much they will sell, I don't know, but I think decidedly they will do more than not harming it. I think they will do some good on it. MR. BELL: I doubt if corporations are much inter- ested in a three-year note. MR. BUFFINGTON: Well, dan, put it this wey, there are a lot of them that have said that they are not interested in certificates, and we know that the tap two and a half is not the proper one for them to buy. I think there is that three-year money around. I may be misjudging it. (The Secretary held a telephone conversation with Mr. Gaston.) MR. BELL: What percentage of the last certificate issue went outside the banking system, George, do you remember? 79 - 8 - MR. MURPHY: We haven't a tabulation of the last one yet. Federal Reserve District No. 1 is out. We have wired them and asked them to hurry on it. Before it was sixty-five percent to banks and thirty-five outside. H.M.JR: How much to banks? MR. MURPHY: About sixty-five, I believe, to banks. MR. BELL: I thought it was better than that. MR. BUFFINGTON: It was forty percent on the one- half certificate in April and not quite as much on the five-eighths; and as I remember, we wired the Victory Fund Committee on the five-eighths that we wouldn't expect them to do any work on that. I do not think they did anything on the five-eighths. MR. MURPHY: I have the figures on those two, and I can have an eleven-bank tabulation within a very short time on it. H.M.JR: Well, Dan, having thrown this all at you - I mean, let's just put the Victory Fund aside for one minute - what do you think? MR. BELL: Well, I like the certificate on the basis of sixty-five. I think that is about right for May 1, for half of it. H.M.JR: The certificate - what do you like? MR. BELL: Point sixty-five for May 1. On the note I was a little dubious, but I think probably that is the best thing to do. I certainly don't think you ought to hit that short-bond market again. I think maybe the June, or March, whatever you sug- gested, 1945, is about as good a place as we can get. But I have some doubts about keeping it open so long, although I don't know as there is much harm in it. Regraded Unclassified 80 - 9 - I do question giving - or adopting the innovations that were suggested, but allowing the - what was that - the banks to-- MR. HAAS: One of them was to have the banks cut off the first two days. The Secretary does not like that. He wants to-- MR. BELL: That was in one memorandum I read - I had some question about that. That is out? H.M.JR: This is the only innovation, and the Fed is going to have a check-up on this. MR. BELL: I would leave the certificate open two days. I have some doubts as to whether you ought to leave the note open longer than two days. H.M.JR: Well, the certificate would be decimal sixty-five, due May 1? MR. BELL: Yes, sir. MR. HAAS: March. H.M.JR: And the note would be one and a quarter due March 15, 1945. MR. HAAS: That is cutting it thin, mainly to help to tend to cut down any free riding that might be there in case you left it open a week. MR. MURPHY: It has got to be cut thin if you allow full allotment to non-banking investors. If it isn't cut thin, you are up against the dilemma of either having delayed delivery, which I think will cut it, or else having free riding. H.M.JR: Delayed delivery? MR. HAAS: Yes, you remember the bankers advisory group advised you to have sixty days delayed delivery, which it seems to me would make the sales job pretty tough. The only other alternative is to cut it thin. 81 - 10 - MR. BELL: We have been outting them thin anyhow. I think we have got to keep that up. MR. MURPHY: Then they cut a slice off themselves, and we are through with it. H.M.JR: The certificate would be payable when, Dan? MR. BELL: The 21st, I think it is, Monday - yes the 21st, and I would make it - that is right after the tax payments, and then the note on the 25th. H.M.JR: September 21 - payable September 21. What do you think, Mr. man? MR. BUFFINGTON: If you are going to leave the notes open only two days, I don't think the Victory Fund will do much on it. I think you have got to give them time to go out and actually contact people. I think the note that you have suggested is all right, and I think they will do a fair job on it. I would like - I don't know why you think corporations wouldn't be interested in that kind of paper. MR. BELL: I think, generally speaking, corporations are interested in something they can get their money out of pretty quickly, and I think they are interested in the certificate. I think they will be interested in this tax note that we contemplate putting out, something that they can get their money out of within six months. But I don't think corporations want to go in for three- year money, generally speaking. I may be wrong on it, I don't know. MR. HAAS: There is 8. fellow out in Chicago, Mr. Secretary, that Ned Brown frequently mentioned, who is supposed to be one of the best bond men, 8. fellow named Charlie Stuart. MR. BUFFINGTON: Harry Stuart. 82 - 11 - MR. HAAS: He should know this sort of question, shouldn't he? MR. BUFFINGTON: Yes, of Halsey, Stuart & Company. He would be an excellent man to get a broad check on the whole middle western, Mississippi Valley market. He would be the best man. H.M.JR: Is he on your committee? MR. BUFFINGTON: Yes, sir, Victory Fund. H.M.JR: What is he, the head of it? MR. BUFFINGTON: No, he is a member of the district committee in Chicago. H.M.JR: Is he very able? MR. BUFFINGTON: Very. I think he is one of the best distributors in the country. You have mentioned him before. I think he has been in to see you; he is an older man, sixty-five. H.M.JR: I don't think 80. MR. HAAS: I think he was over at Farm Credit a long time ago. H.M.JR: Who mentioned him? MR. HAAS: Ned Brown says he is one of the out- standing. - and his firm has done an outstanding job. They have had that bad name, and evidently have come out in good shape. MR. BUFFINGTON: Insull. We have tried to get him to come more out in front, but he was indicted in connection with the Insull fiasco, and I am sure - I mean, they never have gotten anything on him. That is, he is a thoroughly reliable person, but some things that some of his salesmen did were not what they might have 83 - 12 - been, but I think he is one of the ablest national distributors, particularly outside of New York, there is in the country. H.M.JR: You could call him up on the phone and ask him. MR. BUFFINGTON : All right, sir. H.M.JR: You can call him up and ask him what they think. MR. BELL: Supposing we left the note open until Tuesday? MR. BUFFINGTON: I think that would be fine, open- ing it Thursday morning and leaving it open until Tuesday. I think that would help. That gives them & little chance to get out some letters and then to follow up with personal solicitation. H.M.JR: I would do this, I would get out a notice Monday night, giving them forty-eight hours' notice, and close it Wednesday. MR. BUFFINGTON: That is even better, that forty- eight-hour notice. They would like to have that amount of time. MR. BELL: That gives them a week. H.M.JR: That gives them a week, yes. What do you think of that? MR. BELL: That is all right. H.M.JR: I tell you, there is another thing on this thing which I think is important. We ought to have a financial publicity man here. MR. BUFFINGTON: We have been using Prenosil, as you know, for that. H.M.JR: He is not good enough. Regraded Unclassified 84 - 13 - MR. BUFFINGTON: No, Prenosil is not widely enough known for that. We ought to have an outstanding finan- cial publicity man. H.M. JR: In the whole country there must be some- body. MR. BELL: That kind is hard to get. H.M.JR: What I was getting at is just now I think it is good publicity for the public, to come out with an announcement that we are leaving this open for a week for the Victory Fund Committee to go and sell to non-banking institutions. MR. BUFFINGTON: That will really put the boys on notice that they are supposed to go to work. H.M.JR: Show we are doing everything we can under the present laws and limitations to get non-banking money. Now, we can't do any more than that. This issue we are doing isn't particularly designed for non-banking, but we are doing everything we can. MR. BUFFINGTON: Mr. Secretary, that thought of this publicity - as I said, I think it is the most need- -ed thing the Victory Fund - it would be the most helpful thing they could have. H.M.JR:E They need somebody around who thinks in those terms. MR. BELL: Will Sproul be here today? H.M.JR: No. MR. BELL: Just the Board members today? H.M.JR: Yes. It is really childish. Ransom called me up and said he wasn't a member of this, and would I make it plain that he was sitting here at my invitation, although he is acting chairman while 85 - 14 - Eccles is gone; Sproul is acting chairman of the Open Market Committee. I felt like saying, is this a war or isn't it a war. I had to call up Sproul and Williams on the telephone in Philadelphia and pat them on the back 80 they wouldn't get mad at Ransom. MR. BUFFINGTON: Dan, in thinking of this salability of this note, aren't you thinking pretty much of the New York reaction, the New York market? I would expect that this kind of note would go much better outside of New York than it would in New York. MR. BELL: You mean corporations? MR. BUFFINGTON: Yes. H.M.JR: He would be a good man. I think I will call him up - Young in Chicago - and ask him what he thinks of this plan, leaving it open. MR. BELL: What man, Stuart? MR. BUFFINGTON: Young of Fed. He wouldn't have as good a slant on distribution. (The Secretary held a telephone conversation with Mr. Rouse, as follows:) 86 September 8, 1942 10:41 a.m. HMJr: Hello. Operator: Mr. Sproul wasn't there today. I have Mr. Rouse. HMJr: All right. Operator: Go ahead. HMJr: Hello. Robert Rouse: Good morning, sir. HMJr: How are you? R: Fine, and you? HMJr: I'm okay. Where's Allan? R: He's on his way down there. HMJr: Down where? R: To Washington. HMJr: Oh. I see. R: For your meeting this afternoon. HMJr: Oh, for heaven's sake. Okay. R: Good. HMJr: Now, what I want to ask you is - have you had a chance to talk to any of these fellows this morning? R: Yes. I've talked to - we've talked to Levy, Mills and - and Devine. HMJr: Yeah. Yeah, well - R: And they none of them have seemed to change their ideas. Both - Levy is - still sees no sense in leaving the books open. Devine and Mills don't see any harm in it. They don't think it will accomplish much. HMJr: Yeah. Regraded Unclassified 87 - 2 - R: And their recommendations are unchanged. HMJr: Well, what are your recommendations this nice bright Tuesday morning with not sun in the sky? R: Ah - have you got a dull day down there too? HMJr: Yeahl R: It's just as dark as it can be here. HMJr: Yeah. R: Miller and I have just been going over it again, and both - found that both of us have changed our ideas somewhat over the week-end. HMJr: I see. R: I haven't discussed it with Allan, but we're turning more and more to a one and five-eighths of June, '47. HMJr: You are? R: Yeah. Our - as - the way we were leaning on Saturday was for June, '45, one and a quarter. HMJr: Yeah. Now, we just caught up with you on that one. R: (Laughs) But, in thinking it over and over the week-end, it seemed to both of us that we might get a wider distribution with the banks throughout the country with the one and five-eighths. We wouldn't give ground and we wouldn't interfere with a - with a modified tax note. HMJr: I see. Well, that's all true. Mr. Bell 18 here full of beams and sunshine. R: Well, that's good. HMJr: He's looking fine. R: Doesn't he look well? HMJr: Yeah. R: I was - I'm thinking it did him a lot of good. 88 - 3 - HMJr: Right. He said (aside - what did you say, Bell?) How's the market in that area? R: The market 18 - hasn't been too good. HMJr: That's what you've been telling us. R: That's right. HMJr: See, we believe you. R: Well, I think you're right in that. HMJr: Yeah. R: When I got back and talked to the banks on Friday here - all - practically all our large banks, that is - Chase, Guaranty, Bankers, Central Hanover - they all recommended a three to five-year note. That is - one and - one and five-eighths or one and three quarters. HMJr: Well - R: I'm somewhat influenced by that. HMJr: Well, let me ask you this - we're here - will you go along on a - on the certificate, suppose like .65, May 1? R: Well, we're all set on that. We think there's no question about it. HMJr: You're set on that? R: Yes, sir. HMJr: Well, all right. I'm going to do a little check- ing. What - what you're now leaning towards 18 - what are you leaning towards now? So I can get this straight. R: I'm beginning to lean to a one and five-eighths of June, '47. HMJr: One and five-eighthe of June, '47. R: I'd like to know what your people think of it after looking it over. HMJr: Okay. Regraded Unclassified 89 - 4 - R: And, we'll look it over some more, and I'll talk with Allan. He'll call me I think, as soon as he gets there. HMJr: All right. Be calling you back. R: Fine. HMJr: Thank you. 90 - 15 - H.M.JR: I will call Young and Davis. That will give us the Middle West. MR. BELL: That is enough. H.M.JR: What I am going to tell them to do is to look around and call me back at quarter of three. MR. HAAS: This one and five-eighths is really good. (Ticker release brought in to the Secretary.) H.M.JR: The Senate Finance Committee voted by a vote of twelve to zero rejection in total of the Treasury's proposal for combined spendings tax and compulsory savings. MR. HAAS: Bad for you, bad for them, and bad for the country. MR. MURPHY: At least George admits it is not complicated. MR. BELL: Who admits it? MR. MURPHY: George. H.M.JR: What a slap-down. MR. HAAS: That is all right; your record is good. H.M.JR: My record is all right; they will come around to it. After all, how many years has it taken to make Keynes a baron? (Laughter) MR. BUFFINGTON: A lord. H.M.JR: He is & lord. MR. BELL: Is that an accomplishment? (Laughter) 91 - 16 - H.M.JR: They made him a lord for something. MR. BELL: Is that a promotion or a shelving? H.M.JR: I don't know. Do you know why they gave him that? MR. BELL: No, I don't know. H.M.JR: It didn't take them long either. Let me catch my breath. MR. HAAS: This one and five-eighths is really-- MR. MURPHY: Sproul told us last week if we put out a one and three-quarter bond we would hit the bulls eye - the weakest place in the market. Now he is taking a bead on the bulls eye himself. (Laughter) MR. HAAS: I think I know what is in their mental process, how they arrived at that. If you are going to put out the tax notes, that is their baby, and they don't want anything to absorb any part of that market. In order to keep it there they will go out into the weak part of the market. (Mrs. Klotz entered the conference temporarily.) H.M.JR: It is wonderful to get such support from the Senate. (Ticker release handed to Mrs. Klotz.) I didn't ask them - I requested them. (Laughter) MRS. KLOTZ: That is terrible. Why are you laughing? H.M.JR: I am not going to cry. I told them it took ten years for Keynes to be made a lordship, and in ten years they will recognize I was right. MRS. KLOTZ: They always do - you don't have to wait ten years for them to recognize that you are right. Regraded Unclassified 92 - 17 - That is terrible. I see you needed a little nourishment. (Laughter) H.M.JR: That was before. I knew something had been sunk. I thought it was a Japanese cruiser, but instead it was me. It is wonderful to be right and unpopular. MRS. KLOTZ: I can't laugh about it; I don't know how you can. H.M.JR: Henry Murphy was very amusing, as he usually is. This is what they are laughing at. I will have to get him to repeat it. Last week the Federal Reserve - what about a long note? MR. MURPHY: If we put out a short note we hit the bulls eye at the weakest point. H.M.JR: What did you say Sproul did? MR. MURPHY: He is recommending that today; he is drawing the bead on the bulls eye himself. (Laughter) H.M.JR: That is what he said. MRS. KLOTZ: No wonder the President didn't come out for it. He must have been tipped off. Well, thanks for the good news. (Mrs. Klotz left the conference.) (The Secretary held a telephone conversation with Mr. Young of Chicago as follows:) Regraded Unclassified 93 September 8, 1942 10:50 a.m. HMJr: Hello. Operator: President Young of Chicago. HMJr: Right. Hello. C.S. Young: Yes, sir. Young speaking. HMJr: How are you? Y: All right, Mr. Secretary. Just fine. HMJr: Look - can you hear me? Y: Yes, sir. I can hear you very well. HMJr: All right. Now, this is the way our financing looks right now. Hello? Y: Yes. HMJr: A certificate due May let of next year with a - to pay .65. Y: .651 HMJr: Yes. Y: Good. HMJr: Hello? Y: Good. HMJr: But we're going to copy the way New York City sells it, you see? Y: Oh, yes. HMJr: Now, there are two kind of notes. The Fed. in New York - Sproul had gotten me around to a one and a quarter due March 15th, '45. Y: March 15, '45' HMJr: But now, Rouse - they told us last week that was the weakest spot in the market. Y: Uh - huh. Regraded Unclassified 94 - 2 - HMJr: No, wait - no - no that - that was what they wanted last week. Hello? Hello? Y: Yes. HMJr: I misspoke myself. They wanted March 15, '45. Y: Yes, at one and a quarter. HMJr: Now over - what? Y: At one and a quarter. HMJr: Yeah. Now over the week-end they come and say we want one and five-eighths, June, '47. Hello? Y: Yes. HMJr: Which last week they said was the weakest spot in the market. Y: Oh, yes. HMJr: Now, whatever we do on a certificate and a note, the certificate we wouldn't ask to have the people pay it until September 21. Y: September 21? HMJr: And the note payable September 25th. Y: Uh huh. HMJr: You see - sorta to not have all the money to come out at one time. Y: Sure. HMJr: Now, on the note, this is what we're thinking of. In order to give the Victory Fund Committee something to do, give them a week to go out and sell this note to non-banking people, see? Y: Yes. HMJr: And any non-banker who wants to subscribe to this would get full allotments. Y: Full allotments? HMJr: Yeah. Regraded Unclassified 95 - 3 - Y: Uh - huh. HMJr: Now, what I'd like you to do is to sound out some of the people on what I've told you, you see? Y: Yes. HMJr: And get their reaction. Whether they'd like a one and a quarter note or one and five-eighths, because 80 far I'm only hearing from New York. I want to know what the Middle West - because that's where the money 1s. Y: All right. Well, I can - I can let you know this afternoon, or - HMJr: I'd like you to call me at quarter of three, Washington time. Y: All right. HMJr: Supposing you put in: a - I'll handle it, because - I'll - I'll put in an appointment call for you at quarter of three. Y: Well, all right, that is Washington time. HMJr: Yes. I have ten minutes of eleven now. Y: Yes, all right. HMJr: What have you got? Y: Well, see here, it - it would be ten minutes of ten. HMJr: Well, I'll call you at quarter of three my time. Y:' And, I think - I don't know, but I - I imagine, Mr. Secretary, that the one and five-eighths would - would probably be the answer that I will get from most of the people. HMJr: Well, find out, and ask them what would they think - ask some of your Victory Fund people who are in the distributing business, if they had a week to go out and sell this to non-bankers and give them full allotments, do they think that - how much could they do? Regraded Unclassified - 4 - 96 Y: Yes, all right. HMJr: And, could you talk to somebody maybe in Detroit? Y: Well, I'll take Detroit and Milwaukee and Indiana- polis and Des Moines. HMJr: Wonderful. Y: And, then I'll - I'll have the - in fact the Victory Fund - I got four or five of the best - the active salesmen will be in here in a few minutes and I'll - I'll sound them out too. HMJr: Good, and I'll call you back at quarter of three, Washington time. Y: All right. HMJr: Thank you. Y: All right, Mr. Secretary. HMJr: Thank you. Y: All right. 97 - 18 - H.M.JR: Now, you see, he takes that area and Chester Davis can take four or five states. MR. BUFFINGTON: That is a good way. H.M.JR: Then after we have done that, let's talk about the tax note. Have we a teletype to Chicago? MR. BELL: The Board has. (Discussion off the record.) MR. BUFFINGTON: They have suggested a publicity man from Chicago, but he is not 8. newspaper man. H.M.JR: He doesn't have to be. MR. BUFFINGTON: They have suggested an excellent man. I have asked them to hold it up a little bit. H.M.JR: Who is that? MR. BUFFINGTON: I can't recall his name. I have a memorandum on it in my office. He is a very good man for that purpose. H.M.JR: Well, some place there is some fellow. I don't think he should necessarily be a newspaper man. MR. BUFFINGTON: Neither do I. MR. BELL: Did you say Morgan had one? H.M.JR: For years he was famous. Everybody knew him. He not only did this stuff, but - I mean, anything that had to do with-- MR. BUFFINGTON: ...public relations. H.M.JR: He was well known. He died. (The Secretary held a telephone conversation with Mr. Chester Davis, as follows:) 98 September 8, 1942 10:58 a.m. HMJr: Hello. Operator: Chester Davis. HMJr: Hello. Chester Davis: Hello. HMJr: Chester? D: Hello, Henry. How are you? HMr: Fine. How are you? D: Good. HMJr: Chester, I wanted to let you know where we stood on our financing, as of this morning. D: Good. HMJr: Have you got a pencil? D: Yes. HMJr: What the boys have been thinking of is & certificate due May lst.... D: Yes. HMJr: ..... with & - a coupon on it of .65. D: Yes. HMJr: Which would be - the subscribers would pay for it on September 21st. D: Yes. HMJr: Now, the note - last week they were telling us one and a quarter due March 15th, 1945, payable September 25th. D: That's one and one quarter? HMJr: Yeah. D: Yes. Regraded Unclassified 99 - 2 - HMJr: Now, to my surprise, Rouse in New York comes through this morning with a new suggestion, that instead of the March 15th, '45 note, to consider a one and five-eighths, due in June, '47. D: Uh - huh. HMJr: Hello? D: Yes. June, '47. HMJr: Yeah. Now, what I want to know is, what - if you could in the next three or four hours make some checks as to what - the states that you cover .... D: Yes. HMJr: .... what they - which one they would prefer, if they prefer either of these, or if they have any counter suggestions. D: All right - as - on the notes alone? HMJr: No - well, I think you might ask them about the certificates too. D: All right. HMJr: Now, you - you get the certificate would be payable September 21st .... D: That's right. HMJr: .... and the note September 25th. D: September 25th on the note? HMJr: Yeah. Now, we've got an idea that on the note, we'd leave it open for a week to any non-banking subscriber .... D: Yes. HMJr: .... and give the Victory Fund Committee a chance to go to work on that .... D: Yes. Regraded Unclassified 100 - 3 - .... and any non-banking subscriber, we'd give them an allotment in full. D: Yes. HMJr: See? D: Yes. HMJr: Now, I'd like you to try that out. D: All right. HMJr: Now, how many states do you cover, Chester? D: We have one full state, parts of six others. HMJr: Well, do as much as you can and I'm going to call you back at ten minutes of three, Washing- ton time. D: All right. HMJr: Do as much as you can. D: All right. We'll get busy right away. HMJr: Now one other thing which I don't need this morning but you might think about. I'd like to get a really first-class publicity man to help this Victory Fund Committee. D: You mean from Washington? HMJr: No, anywhere I was thinking was there anybody in the D'Arcy Agency or anybody like that. D: Do you - within our district or down there? HMJr: I want - if there's anybody in your district who could come to Washington. D: That's right. You want him in Washington. HMJr: See? I mean - if there's any really outstanding man who knows the financial game and could help the Victory Fund Committee with publicity. D: I'm not sure that D'Arcy's got the man. He's on our own committee and I haven't been able to get very much out of him, to tell you the truth. Regraded Unclassified - 4 - 101 HMJr: Well... D. But I'll check that too, and do the very best I can. HMJr: Well, I mean, this, I don't expect this morning you know. D. Yes. HMJr: But, I mean ... D. If we have such a man in here, I'll certainly get you the information. HMJr: And I'll be back at ten minutes of three Washington Time. D. Ten minutes to two here. All right. HMJr: Yeah. D. I'll be ready. HMJr: Thank you. D. Thank you. 102 - 19 - H.M.JR: I think that covers ten states, and it is the heart - did I state it correctly? MR. BELL: Yes, sir. H.M.JR: Now let's talk about - give me five minutes, will you? (A short recess was taken at this time) H.M.JR: Now let's talk about this tax note. How would you like to have it, Mr. Bell? MR. BELL: I don't know yet. At first when we talked about the thing I was in favor of a graduated rate, making a dual purpose note out of it, but over the week end I have sort of come back to the old flat six cents a month, point seventy-two percent, and making it 8. tax noteonly-- H.M.JR: How would that work? MR. BELL: but as George and Henry point out, we still have the Federal on our neck for a short tap, and by making this a dual note we get rid of that proposition with the Federal. How would that work - that would work just like the present note, which is on a point forty-eight basis, and would raise it to a seventy-two basis, six cents a month instead of four cents a month. But I don't think we ought to go to the one point fourteen of the Federal. I think that is too high. I think it will influence the short rates - it will have a tendency to. I don't think we ought to go that high. Before I left we talked about a four, five, six, seven, eight, nine, which was about eighty-four. I thought that was about the point where we ought to stop, but since then George has raised it up to five, six, which gives you about point ninety. De 103 - 20 - H.M.JR: And then the so-called Szymozak thing? MR. BELL: Szymczak has one that comes out one point zero four. That isn't a lot different, right in between the Treasury proposal and the Federal Reserve. I think the ninety is high enough. That is the way I feel. H.M.JR: What did you say? MR. BELL: I think the ninety is high enough. H.M.JR: You haven't a curve showing how that thing works? MR. MURPHY: Yes. (Chart handed to the Secretary.) The top curve in black pencil represents the market. The market curve shows the amount you get if you buy an open-market obligation, having made up your mind in advance the time that you want to hold it. That is the solid pencil curve. Just to see what that would mean if it were followed religiously in terms of a tax note, we priced a tax note of our own along this curve. This note would offer its purchasers everything that the market does, and & lot more, too; that is, they could get out at the end of six months, and yet if they chose to stay for three years they could have six months' money at that rate. Just to give you an idea of how high it is necessary to go to get that effect, notice the rates, four, eight, eleven, twelve, thirteen, fifteen cents a month in successive periods. We priced that to give us a market note. H.M.JR: Have you had this right along? MR. MURPHY: We had this last week. Next we plotted the Board's proposal, which is the green one. That is the one that goes five, nine, ten, eleven, eleven, eleven. You notice it is ahead of the market here (indicating); but in the last year of its run it falls behind the market. The market note is, as I Regraded Unclassified 104 - 21 - recall, one point twenty-eight, and this one is one point fourteen, 80 even the official Board proposal does fall behind the full market. It doesn't quite meet the bogey of letting a person who intends to stay for three years get the full three-year rate, even though he can get out at any time. Now, the Szymczak proposal, five, eight, nine, ten, ten, ten, is the yellow curve. The five, six, seven, eight, nine, ten, which is our proposal, is this (indicating). We are way below the market as it is here computed, but we are way above the real alternative which a person would have. At the end of a half year he would get sixty hundredths of one percent on our proposal. Now you are contemplating putting out a sixty-five hundredths percent certificate for about seven and a half months. So you see, if he stayed in & half year he would be substantially better off than in the market. After that he would have thirty-day money; he could get out at any time on thirty days' notice. The rate on thirty-day money is point three seventy-five, and yet instead of getting that he would get successively higher rates, which get up to one point twenty during the last six months, and he would average point ninety for holding the instrument the whole time. So you have an instrument which, while it falls short by quite a margin of giving the rate on three-year money for the whole period, nevertheless gives a rate very much in excess of the rate which can be had on any instrument that allows its holder to get out with equal facility. It also gives the holder a very substantial vested interest when he has held it a while. H.M.JR: Is that a fai way to figure it? MR. MURPHY: I think that it is. H.M.JR:- Do you figure any bond which has a year or two years before it comes due - do you figure it that way? MR. MURPHY: If it were an open-market security, of course, as it came to within one or two years of UInclassified 105 - 22 - falling due, it would be priced by the market as a one or two-year security. All of them are 80 priced. MR. BELL: This is on the order of a savings bond, but it is not above the market. MR. MURPHY: As the savings bonds were originally priced they would be priced on this top curve, because in pricing those back 8. year and a half ago we actually gave them the one-year rate if they were held one year, and the two-year rate for two years. It was an exceedingly good proposition; the purchasers did not have to decide in advance how long they wished to stay in, but however long they stayed, we gave them at least the rate for that time. This pricing does not give that full advantage. Since the F and G savings bonds were priced, market short-term rates have gone up a great deal. Now you have to hold an F or G about seven years in order to get a rate as good as the mar ket. After that the rate gets very much better. When you first put them out the rates were better all along, but the market has moved up. It has moved that way, and, since we have no intention of changing the F and G bonds, as far as I know, it provides us a standard of comparison. It is int eresting to compare the F and G savings bonds with this five, six, seven, eight, nine, ten proposi- tion. For about the first two and a half years a holder would do better with the tax note than with the savings bonds. H.M.JR: With this tax note (Indicating)? MR. MURPHY: Yes, sir. Of course the E bond is much better. H.M.JR: Let me study this. Does this, the five, six, seven, eight, nine, ten - has that been sent out to be tested? MR. MURPHY: No, Mr. Secretary. MR. BELL: To be what? H.M.JR: Did we send it out to the Fed to be tested? Regraded Unclassified 106 - 23 - MR. HAAS: Just the flat rate, the seventy-two, was sent out. They thought that was all right. MR. MURPHY: The only one we sent out was the flat seventy-two. H.M.JR: He gives a pretty good line of reasoning there, doesn't he? MR. BELL: Yes, sir. MR. HAAS: Rouse agrees with that a hundred per- cent. H.M.JR: Which? MR. HAAS: The line of reasoning that Henry just gave you. H.M.JR: What about Piser? MR. MURPHY: Piser goes along with the Board a hundred percent, although I imagine he got a copy of their telegram. (Laughter) H.M.JR: Tell that to Bell later on - what I did. We sent out a request to the twelve bank presidents, what we were going to do, and foolishly, I guess, we sent a copy over to Ronald Ransom. So he quickly sent them a telegram. Two. of them made up their minds before they heard from the Board. Then when they heard from the Board they changed. MR. BELL: Yes, I saw that. H.M.JR: Supposing I made this change and the thing did not go well, you have no way - because this thing - I would be counting heavily on the Victory Fund on this five to ten. You have no way of testing that with your own boys, have you? MR. BUFFINGTON: Yes, sir, we can. 107 - 24 - H.M.JR: I don't think you ought to test that with - a little bit depends on if this thing went to June '47, and this thing wouldn't compete with that. MR. BUFFINGTON: That is right. A short note will compete with these tax notes. H.M.JR: I think we ought to wait until we see what we do on the '47. MR. BUFFINGTON: Dan, we agreed that that original rate was fine just as a tax note. It just depends on what kind of sal es you are going to try to hit, whether you want to try to get into that short tax area or not. MR. BELL: You mean the graduated rate we had before? MR. BUFFINGTON: When we first talked, we agreed we didn't need anything over seventy-two to make it the right, attractive type of tax notes. (Ticker releases handed to the Secretary.) H.M.JR: Do you realize that cotton is eighteen and a third cents. MR. BELL: What is parity, nineteen? H.M.JR: Where the President, I think, with all due respect, was inconsistent- I mean, he knows we have to get the people to spend less, but he wants to freeze everything at the present level. MR. BELL: They ought to go back about four months. MR. HAAS: Last month all farm prices averaged a hundred and seven, wasn't it? H.M.JR: That is the last I saw. Commodities are up almost a half a point this morning, commodity futures. MR. BELL: I don't believe that this could be & failure. I should think it would be at least - certainly 108 - 25 - better than what your tax note has been. I wouldn't say that has been a failure, by any means. MR. BUFFINGTON: That is right. H.M.JR: I think this, gentlemen, after what Murphy told me - have you tried to explain that to the Board? MR. MURPHY: Yes, Mr. Secretary. H.M.JR: Have you shown them this chart? MR. MURPHY: Yes, I have. Their point is, that in order to do it really well they have to offer a person who contemplates staying in, say, three years, a rate which is approximately one to three year money. It is a rather fundamental divergence. H.M.JR: Say that again. MR. MURPHY: They have to offer a person who contemplates staying in for three years & rate approxi- mately equivalent to what they can get on three-year money. Then his right of withdrawal is something extra. They say that you are not going to be able to get this money that people think they won't need for three years unless you offer them a rate which is attractive, not only for six-months' money, or one month, but attractive for three-year money, and then give them the extra as a bonus, the exit visa. H.M.JR: The what? MR. MURPHY: The right to get out. MR. HAAS: It would seem to me, Mr. Secretary, that you might make it either just a pure bona fide tax note at seventy-two and leave out the dual; but if you are going to put the dual in you don't gain very much if they don't accept it enthusiastically. In other words, it is their proposition anyway, rather than yours, and you give them & real alibi. Regraded Unclassified 109 - 26 - H.M.JR: Well, George, on that basis I would have listened to them on the bills going from three-eighths to a half, and the bills are being accepted more and more. MR. HAAS: No. H.M.JR: Sure. The way I think we in the Treasury have got to watch after all the Fed is much closer to the banks than we are, and the pressure will always be on us to pay more. MR. HAAS: They are not letting the banks buy this, they want to make good themselves. H.M.JR: The banks can't buy this? MR. HAAS: No. MR. BELL: Banks can't buy except for taxes. H.M.JR: Well, but they can buy them for taxes. MR. MURPHY: They are going to lose. The banks have relatively little to gain in buying for taxes and are worried lest their customers buy them and draw out deposits from banks. So the pressure from banks has been to pay a lower - Burgess said last week it was just unfair to pay more to these people than to the tanks. It was a matter of, just, as he expressed it-- MR. HAAS: The motivating force - the real force is it is their pride. They have announced it; it has been all around. When something comes out, they want the price 80 rich it is bound to go without any salesmanship. MR. BELL: The bankers were against this. MR. HAAS: Brown was worried about the seventy-two. MR. MURPHY: But they can take it. They wanted just the seventy-two and the straight tax note as opposed to the dual-purpose concept, and opposed to the short tap as a whole. 110 - 27 - MR. BELL: Viner was opposed to it originally, too. I don't know if he has come around to it. MR. HAAS: He is in the same position. MR. BELL: Viner thought the tax note had won & place in our financing and it should be kept as a tax note and shouldn't be mixed with the financing. He says everybody now is familiar with the tax note, they know what it is, and if you make it a financing note, you only change the name and everybody is mixed up again. He thinks we have done a swell job with the tax note and ought to keep it. MR. HAAS: You can put up an argument that this is a tax note and forget about the dual. If a corporation wants to pay cash, they can do it, because of these changes. H.M.JR: How are you going to answer their ques- tion? There is a lot of money in this field. Could you get out something special that was only for non- banking people, and don't let the banks subscribe to it at all? MR. BUFFINGTON: Then you get back to the short tap and all - Ned Brown and commercial banks are just as opposed to the short tap. H.M.JR: All right, supposing we get out a short tap. You haven't got the seventy-two? MR. MURPHY: No, I can draw it in easily. It is just a straight line, of course. MR. HAAS: The short tap may be a flop. This thing - you are sure it won't be a flop. I mean, this will go. MR. BELL: At two or two fifty a month. MR. BUFFINGTON: Cheaper than a short tap will go, a cheaper rate. H.M.JR: Which would you prefer to sell? Unclassified 111 - 28 - MR. BUFFINGTON: The Szymczak rate. H.M.JR:- I don't mean that. MR. BUFFINGTON: I would prefer, from a selling point of view,-- H.M.JR: Excuse me - you have got three things. We could increase the present rates on the tax notes from forty-eight to seventy-two, or we can have a combined tax note and cash-in features, the thing we are talking about here, or third, a short tap. MR. BUFFINGTON: I would prefer the dual purpose, because if you hit on something like the Szymczak rates it isn't an expensive method of financing and then you get the same benefits out of the publicity you are using on tax notes and don't have to go out and educate the public on 8. second security. MR. BELL: Again that seventy-two is thirty-day money after the six months - what do you think of compromising at the Szymczak rate, one point zero four? H.M.JR: The only compromise we have made is that - put the last three months, put it up to - he only goes to ten, doesn't he? MR. MURPHY: Yes, five, eight, nine, ten, ten, ten. MR. HAAS: He gets up to ten faster, that is all. H.M.JR: I was thinking a little bit different. I was thinking of five, six, seven, eight, nine, eleven, jump to eleven, change ours from ten to eleven. MR. MURPHY: That will make very little difference in the over-all yield. H.M.JR: Cost? MR. MURPHY: Cost, yes. H.M.JR: Just the last six months pay eleven in- stead of ten. Regraded Unclassified 112 - 29 - MR. MURPHY: You only raise it ninety to ninety- one, I think. No, it would go to ninety-two. H.M.JR: Five, six, seven, eight, nine, eleven. MR. MURPHY: Raise-- H.M.JR: I mean, that would certainly give them the incentive to hold, wouldn't it? MR. MURPHY: Not a great deal, Mr. Secretary. That is, it means they are getting twelve hundred more in the last six months. H.M.JR: If they don't hold it, it doesn't cost us anything; and if they do, if they sit down and figure, "I don't want to lose that last six months." MR. MURPHY: If the people actually go out early, the end rate doesn't cost you anything. MR. HAAS: Of course, they argue that they have two points in their curve, one is, raising up very rapidly at the beginning in order to get them in at the start, and then hold them. That is why they flatten - that is their philosophy they outlined to us. MR. HAAS: Mr. Secretary, Rouse said to take this - he doesn't like this; he is just like you. He would compromise by taking that eight and ma king it seven, that is, Szymczak's with that modification. (The Secretary held a telephone conversation with Mr. Rouse as follows:) 113 September 8, 1942 11:46 a.m. HMJr: Hello. Operator: Mr. Rouse. HMJr: Hello. Bob? Robert Rouse : Yes sir. HMJr: Uh, what have you got that's new? R: Nothing. HMJr: Well, the sun's coming out here anyway. R: (Laughs) Well that's good. HMJr: Nothing new. R: Nothing new here at all. There's no change in the market, nothing much going on, and no new comments. HMJr: Well I got a, well I won't even call it a suggestion, a thought... R: Yeah. HMJr: ...on this tax note, see? R: Yeah. HMJr: I, I want to get my name on one, but I am not ready to put in on. I mean the Treasury was 5, 6, 7, 8, 9, 10. Hello R: Yeah. HMJr: I'm suggesting to make that 10, 11 - the last six months. R: Huh? HMJr: Hello. R: No. This is a fight I've kept out of. HMJr: Well, get in on it. 114 -2- R: (Laughs.) HMJr: Get in on it. R: All right. HMJr: I've been thinking... that... R: But, you go along with this 5, 6, 7, 8, 9, 10 except that you jump from 9 to 11. HMJr: That's right. R: Yeah. HMJr: Well, I'm not saying that I'm doing it, I'm just raising the... R: You want a, uh-huh. HMJr: Why aren't you in on the fight? R: Well, I haven't been in exactly full accord, except with the 1dea. HMJr: Well, I mean, don't you believe in doing this, having a dual purpose? R: Yeah, I, I gave Dan and George support when they first proposed it. HMJr: Yeah. R: But I'm not 80 keen on the higher rate at the end. HMJr: Well, what, what would you do if you could write the ticket? R: I think I'd do something akin to the Szymczak label... HMr: I see. R: ...which, when it... would work about 5, 7, 9; 5, 7, 9, 10. HMJr: I see. R: It's a little different than his, but 5, 7, 9, 10. Doaradod -3- 115 HMJr: I see. R: Then you've got, I'm going on the theory that you've got 30-day money. HMJr: Yeah. R: Uh, and you have an average rate of a little less than one per cent... HMJr: I see. R: ...and I can't 600 why, in the first place, one couldn't sell it. HMJr: Yeah. R: I think it should be easy to sell, and I think after a man owns it there's certainly no incentive to turn it in until maturity, because his alterna- tive is either to take three months' money at three- eighths, or invest it in business where he may make 5, 6 per cent. HMJr: Yeah. R: That's my whole reasoning in the matter, and I haven't seen any need of these bonuses at the end. HMJr: I $00. You'd go 5, 7, 9, 10, 10, 10. R: Yes sir. HMJr: O. K. R: Right. HMJr: Thank you. 116 - 30 - MR. BELL: That seems high. H.M.JR: While you fellows are figuring, I will get hold of Ransom. MR. BUFFINGTON: That is an awful little difference. He is talking around one and your Szymczak plan is one point zero four. H.M.JR: He wants to keep it just under one. MR. BELL: Bob Rouse hasn't been in on the dis- cussions very much on this tax note recommended by the Federal because he has not been in sympathy with the higher rate, 80 he has kept out of it pretty well. (The Secretary held 8. telephone conversation with Mr. Ransom, as follows:) 117 September 8, 1942. 11:51 a. n. Ronald Ransom: Hello. HMJr: Ronald. R: Yes. HMJr: Good morning. R: Good morning. HMJr: Now, we here have been working on this financing this morning. R: Yes. HMJr: And, there doesn't seem to be, or putting it - there seems to be fairly complete agreement on the Certificate at .65, due May lst. R: Point what? HMJr: 65. R: Yes. HMJr: Payable... R: Yes. HMJr: Payable September 21st. R: Yes. HMJr: Now, we were just about coming around to 1-1/4% note, due March 15th... R: Yeah. HMJr: ...when to our amazement, Bob Rouse is now talking about a 1-5/8's, June #47. R: 1-5/8's? HMJr: Yeah. R: Due what, HMJr: Hello. R: ...due when? - 2 - 118 HMJr: June 147. R: June #47. HMJr: Yeah. R: Well, I think perhaps, just very confidentially between you and me, your perplexity would be added to by the fact that there doesn't seem to be much agreement over on our side of the fence. HMJr: I see. Well, we're seeing each other at... R: Well, now may I say this to you. I think it is tremendously important to maintain the integrity of the Group with which you have been negotiating, which is the Executive Committee of the Federal Market Committee, and all of them are in - will be in town available and will meet with you, but at this time that does not include me... HMJr: Yeah. R: ...and with your agreement which I hope I may have... HMJr: Yeah. R: ...I had rather just let that Group meet with you... HMJr: I see. R: ...and then when I see you again explain some of the current difficulties from this end if you don't mind. HMJr: Well, I don't know, but it seems to me with Ecoles away and you Acting Chairman, you ought to sit in. R: The difficulty is this, that I do not have a vote on the Executive Committee. Frankly, this is an awkward set-up just at this time, because ordinarily I'm Eccles' alternate on that Committee. HMJr: Well, now listen, Ronald, God Damn it, we're at war... R: Yeah. HMJr: ...and if I want Ronald Ransom to come over to my office at three o'clook to advise me, I think he ought to come. 119 -3- R: I'll do anything you ask me to, and you know it. HMJr: And to - and to hell with stiquette. That's the way I feel. R: (Laughs.) HMJr: I mean, you can't win a war that way. R: All right, I'll... HMJr: Now I want you over here a+ three o'clock, and if anybody doesn't like it you tell them to talk to me about it. R: All right. I'm coming at your request, but will you please get the views of the Executive Committee first and then give me a chance. HMJr: I'll do it that way, but this - we are at war and I can't be bothered if some fuddy-duddy over there doesn't - is more interested in etiquette. R: It isn't 80 much that, but some day when you have more time, and you and I are not at war, I'll ex- plain it to you. HMJr: Well... R: You'll agree with me. HMJr: All right. But anyway... R: But I'll come if you ask me. HMJr: I'm asking you. R: Fine. I'll be there at three o'cloak. HMJr: 0. K. R: All right. 120 - 31 - (The Secretary held a telephone conversation with Mr. Schwarz.) H.M.JR: Rouse said his was under one. MR. BELL: Henry figured it one point zero two. H.M.JR: You have got five, seven - you want to get it just under one percent? MR. BELL: Yes. H.M.JR: What is the matter with this? MR. MURPHY: It looks all right to me. H.M.JR: Can you give me a little chart? Put this in red ink or something heavier. MR. MURPHY: It is a little hard to put in, but I can give you the points, sketch it in. H.M.JR: Why doesn't that sound pretty good? You wouldn't announce this until - depending upon-- MR. BELL: No, I wouldn't announce this until after this financing. He doesn't believe - and I don't believe I would ask the Victory Fund Committee about it, because the minute you start discussing this outside, nobody is going to subscribe to tax notes. MR. BUFFINGTON: There is not much doing anyway the next ten days. MR. HAAS: You won't sell any of these notes, either, if they know about it. H.M.JR: Would you or wouldn't you announce that that banker group was down last week to see me - advise me? MR. BELL: Yes, I would. I read your conference on that, and I would. I don't see any objection to it at all. I think it is a good thing. 121 - 32 - H.M.JR: All right. Who can give him a list of the people who were here? MR. BELL: I can give him a list. H.M.JR: Did you read the Kent article? MR. BELL: Yes. MR. MURPHY: Thank God I didn't confuse that with a speech by the President. (Laughter) MR. HAAS: It hasn't yet reached the stage where they will submerge private interests for the war. That is just an evidence of it, that Kent business. (Mr. Schwarz entered the conference.) MR. BELL: There is the list. (List handed to Mr. Schwarz.) Then there is also Viner and Stewart. H.M.JR: I would have to get their permission. It wouldn't look too much as though we were trying to answer Kent, the fact that they were here last week? Chick, they are the people who were here to advise with me last week on this financing. Tom Smith is from the Boatmans' National Bank of St. Louis, and Spencer is from the First National of Boston. What day were they here? MR. BELL: They were here Wednesday or Thursday. MR. HAAS: Wednesday. H.M.JR: I would say they were here the middle of last week. MR. BELL: Either that, or say last week on this financing. H.M.JR: Last week on this financing - I want to give you Stewart and Viner in a minute - I have got a call in. You might as well tell them - you haven't told them about your coming yet? 122 - 33 - MR. SCHWARZ: Yes, they will be down there in a minute. H.M.JR: Where? MR. SCHWARZ: In the press room. H.M.JR: We met twice, didn't we, last week with the Open Market Committee? MR. BUFFINGTON: Yes. H.M.JR: Why not say we met once with the Open Market Committee and once with the Federal Reserve Board? That is truthful - once with the Federal Reserve Board and once with the Open Market Committee. The other time they weren't here. It was the Federal Reserve Board I met with Friday, once with the Federal Reserve Board and once with the Executive Committee. MR. SCHWARZ: This will be the second meeting with the Executive Committee? H.M.JR: It was once. Friday afternoon - they didn't want to call that an Executive Committee meeting. MR. SCHWARZ: Third meeting with Federal Reserve officials? H.M.JR: No, you had better say that I met once with the Board and this will be the second meeting with the Executive Committee. MR. BELL: This is the third meeting with the Executive Committee, Mr. Secretary. You met, I think, in the day, at eleven, on September 1, and then at eight-thirty you had Sproul and Ransom and the others. H.M.JR: Well, this is really then the fourth time. MR. BELL: The third meeting with the Executive Committee and you had one meeting with the Board. 123 - 34 - H.M.JR: Third meeting with the Executive Committee and once with the Board. MR. BELL: And one meeting with the bankers. H.M.JR: Do you think they will like this, and it is not too much an answer to Mr. Kent? MR. SCHWARZ: They will like it. H.M.JR: But it was last week. It isn't as though I suddenly got Johnny Hanes to come down. MR. SCHWARZ: Some place I read that this is one war they can't say J. P. Morgan started. H.M.JR: George Harrison told me last week what New York wanted was some big figure down here in the Treasury. Of course they have wanted that ever since I came here or before. MR. BELL: Some big figure? H.M.JR: Financial figure, like George Harrison. (Laughter) MR. HAAS: Of course, the biggest ones in 1929 are not there any more, for obvious reasons. H.M.JR: I should like them - like Charley Mitchell. MR. SCHWARZ: Whitney. (Chart handed to the Secretary by Mr. Murphy.) H.M.JR: That wouldn't be too bad. MR. MURPHY: It looks very reasonable. H.M.JR: Let those names go and I will see. They are having trouble getting Stewart. Do you think Viner would have any objection? I never asked. 124 - 35 - MR. BELL: Haven't the boys known that Viner and Stewart have been here? MR. SCHWARZ: They have been seen here. H.M.JR: I think we had better ask those two. Let that go for a while. I think we will stop here and we will continue at quarter of three. 125 September 8, 1942 10:28 a.m. HMJr: Hello. Herbert Gaston: Hello. Operator: Mr. Gaston. HMJr: Hello. Hello. G: Yes. HMJr: Herbert, I wish you'd talk to me about - sometime today - of amongst the financial advertising men who helped us originally on the War Bonds, who - who was the best - the one from St. Louis, or the one from New York. I remember they both had some bright young fellows, you see? G: Yes. HMJr: And I - I mean a possibility of getting - was there any one that stood out? G: Nobody that stood out. No. HMJr: They didn't? G: No. Probably the best of the lot was this fellow, Clevenger, and we had him in here working on tax things, and he didn't pan out very well. He's now gone to the - to the Federal Communications Com- mission. HMJr: Yeah. G: The very bright fellow was the salesman that I don't recall his name, that represented D'Arcy of St. Louis. He - he might be - he might be some good. HMJr: A salesman? G: Well - he's the fellow that represented them down before us. He was essentially an advertising salesman. He was not & copy man. HMJr: No. Well, think about it. G: I could - I could ask Jim Bryan, but I don't - I don't myself know anybody that's - that was Regraded Unclassified 126 - 2 - hot on either of the organizations. HMJr: Well, talk to me about it some time today. G: I will. Yes. 127 September 8, 1942 12:58 p.m. H&Jr: Hello. Operator: Mr. Paul. He's with Mr. Blough. HMJr: All right. Operator: Go ahead. HMJr: Hello. Randolph Paul: Yes. I wanted to report to you about this morning. HMJr: Where are you fellows? P: Well, they're all working - we're all getting a statement up for two o'clock down in Roy's shop. HMJr: I mean, are you in the Treasury? P: Oh, yes. I can come up and see you if you like. HMJr: Well, we'll talk on the phone. P: All right. HMJr: Go ahead. P: They turned down the - they turned down the spendings tax. HMJr: I saw. We didn't even have a vote. P: No. Well, of course, there were only eleven votes. Some of them didn't vote but La Follette made a motion for a modified spendings tax.... HMJr: Yes. P: .... which got a few votes. So, really we didn't - we did have some, and the people that might have voted for us weren't there. Now, they then picked up a discussion, started out a little bit on the sales tax, but that didn't get very far because George came in then with his plan - made Walsh chairman and came in with his plan. HMJr: Yeah. 128 - 2 - P: This plan is a gross income tax which has an exemption of $624.00. It hits down - it's on gross income - five per cent. It has a sort of an elusory post-war rebate up to a certain amount which can be taken immediately by applying it against debt payments, insurance premiums, and WAr Bonds. Actually there won't be any appreciable War Bond element in it, because it is only five per cent and most people won't have enough debt payments and insurance premium payments to absorb it. There was a good deal of discussion of that and the sales tax some of the sales tax boys were a little bit frustrated. They asked - we made a few technical comments on it, preliminary to this thing we're taking up at two o'clock. Now - the only - the only policy position we took was this morning that, in response to a question, I said that the plan had some technical defects, some of which could be eliminated. I wanted 'til two to make any decision on it, but then they pressed me for an answer on whether I thought it was better than - better than sales tax, and I said I thought it was. Now, our feeling about it is this - (aside: let me have that sheet there, will you?) aside from technical points which I won't bother you with HMJr: Yes. P: ... we - we have here an equivalent which we think we ought to state. That is, they've asked us for our opinion now, and we say we would perfer something first, and then if that isn't done.. HMJr: What do you mean 'prefer something first'? P: Well, I'll - we wouldn't - rather than this gross income tax we can't honestly say we prefer that, except as against the sales tax HMJr: Yeah. e: ... and I think we ought to say what we think ought to be done. HMJr: Yeah, otherwise you're getting us caught in the same trap as last week. P: Well, yeah, except that I can't help it if the newspapers completely misrepresent the facts. We weren't really in that trap, but anyway, that's 129 - 3 - history - last week is history. We're not making a suggestion here, we're telling what would give the equivalent and taking the equiva- lent with the spendings tax out, it seems to us, it would be better than the proposed tax to lower the married exemption to a thousand and credit for dependents to $250. Then for 1942 income tax rates, reduce the income - those rates by ten points and increase the '43 and subsequent years' rates by five points and start withholding at the source January 1st, 1943 at fifteen per cent. Now, that's a much cleaner picture, and it's on the net-income basis - it's - it ties in with our present tax structure - it doesn't go down 80 low. HMJr: Now, I can't follow you. You fellows shoot these things at me 80 fast - it's impossible - 2: Well, you see, this plan goes down - this plan goes down and taxes people - this gross plan of George's goes down and puts a tax on, for instance, married couples HMJr: Yeah. P: ... who are making, say $650.00. HMJr: Oh. P: Well below a thousand. HMJr: Well, that's crazy. P: And - well, it's crazy, but it's - it's better than a sales tax - it gives some exemptions, but I prefer to stand clean on the picture. It seems to me we ought to stand clean on the picture that - that we oughtn't to go below the thousand dollars.. HMJr: Yeah. P: .... and the way to do this - to get a practical equivalent of what they're trying to do in terms of revenue - is to - is to put the rate for '42 down, but put the withholding well up for '43. HMJr: Put the '42 rates down, but - P: Yeah, yeah. Well, reduce the '42 rates ten points and put the '43 rates up five points. 130 - 4 - HMJr: I don't know what you mean "ten points" and "five points". P: The percentage points. For instance, put the twelve per cent up to - put the twenty-two per cent rate down to twelve for '42's liability - HMJr: Withholding, you mean? P: No, that's - that's your 1942 tax, and then raise your withholding - HMJr: I don't understand what you mean. P: Well, your - you have a certain type of liability for '42.... HMJr: Yeah. P: .... under the House Bill. Now, just reduce those rates for '42. HMJr: Why reduce them? P: Because, you have to get people - you can't have withholding at a high rate for '43 and the high rate for 42 liabilities. HMJr: I see. P: We're trying to get over that hump, you see? Same old hump. HMJr: Yeah. P: And you get about two billion eight hundred million additional revenue. HMJr: By doing - P: By reducing the liabilities for '42 income tax... HMJr: Yeah. P: .... but at the same time increasing the percent- age liability for '43 by five points and coupling that with a fifteen per cent withholding. HMJr: Fifteen per cent withholding, when? P: Beginning January 1st, '43. 131 - 5 - HMJr: And is that redeemable. - refundable? P: No - I - I neglected to tell you this, that as far as the refundable part is concerned, they don't want to deal with any refundable tax now - they want - they're - they're thinking strongly of appointing a committee to go into that whole subject of compulsory saving, or whatever you want to call it, and report back January lst. They - they're not prepared to take any action on that. You see they voted - even voted - they voted La Follette down. He was for our plan with a smaller - with certain slight modifications, end they voted that down largely because it had the refundable tax in it. HMJr: Well, I - I - I'm just dizzy. I - I can't - I can't - (aside: Is Mr. Bell around? Tell him to come in) I can't - P: Do you want me to come up there? H&Jr: No, I can't do it anyway. I can't - you fellows think about these things for days and then, after all, these are plans which will affect every man, woman, and child, and then you give me a new plan literally every day. P: Well, you've got to meet each situation as you come to it .... HMJr: Well, no - we never - we never were in it that way before. We don't - it's impossible, I mean to give the Committee a new tax plan well thought out between morning and lunch time. P: Well, we've been thinking we've been - this is an alternative, based on certain conditions that arose this morning. HMJr: Well, it's - it's .... P: It's not a .... HMJr: Well, I - I just - I can't - I don't know whether it's good, bad, or indifferent. P: Well, then all right. Then I won't put it up. HMJr: Well, I mean, how - how can anybody that - I mean 132 - 6 - give me a plan like this absolutely cold, and then for me to say, it'll do the trick - it's entirely - you want to lower the exemp- tions, bring up the withholding to fifteen per cent - I can't - I can't follow you, Randolph. P: Well - HWr: As I said the other day... P: If you don't want me to, I won't put anything up. HAJr: I'd have to be a flea to jump from one plan to another. P: Well, they voted down our plan now, and they - HMJr: I know, I can read the ticker just as well as you can. P: Well, then, what do you want me to do? I - I ... we get faced all the time up there with these facts. HMJr: Well, it's very simple what to do. Tell them, God damn it, we gave them a good plan and they don't like it, let them write the tax bill. Why would you give them a plan one in the morning and one in the afternoon? P: Well, all right, I'll do it that way if you want to. HMJr: Well, I mean, supposing you and Roy come up. I - I can't - I wish you'd both come up a minute and bring ... P: All right, we'll do that. 133 September 8, 1942 2:40 p.m. FINANCING Present: Mr. Bell Mr. Buffington Mr. Haas Mr. Murphy Mrs. Klotz (The Secretary held a telephone conversation with Mr. C.S. Young, as follows:) 134 September 8, 1942. 2:44 p.m. HMJr: Hello. Operator: President Young in Chicago. HMJr: Well, tell Mr. Bell and the other Group to come in. Operator: Right. HMJr: Bell and Haás and that Group. Operator: Right. Operator: Go ahead. HMJr: Hello. C:S. Young Hello, Mr. Secretary. HMJr: How are you? Y: Oh, this is Young, Chicago. HMJr: Yes. Y: I made a pretty good check of Detroit, Milwaukee, Indianapolis, Des Moines and Chicago. HMJr: Yes. Y: And the consensus of opinion amongst all the Banks, with the exception of three... HMJr: Yes. Y: ...that the one-and-five-eighthe '47 would be more de- sirable and would probably, would go over much better. HMJr: I see. Y: Now the three banks that thought the one-and-a-quarter were the Northern Trust Company, the CityNational Bank of Chicago... HMJr: Wait a minute, wait Y: ...and the Manufacturers National of Detroit. HMJr: Wait, you're going too fast. Which three prefer the... 135 - 2 - Y: One and a quarter were the Northern Trust Company of Chicago. HMJr: Wait a minute, Northern of Chicago. Y: And the City National Bank and Trust Company of Chicago. HMJr: City National of Chicago, yeah. Y: And the Manufacturers National of Detroit. HMJr: Well now, are any of those big banks? Y: Yeah, they're all large banke. HMJr: I see. Y: Northern's about four hundred million, and the City's about two twenty, and the Manufacturer's about three hundred and thirty million. HMJr: They all preferred the one and a quarter? Y: One and a quarter, because their whole. - the whole portfolio was all short, you know, and they lean that way all the time. HMJr: Do they lean that way anyway? Y: Yes. And 80 they would always, those three banks, would always take the shorter maturity regardless. HMJr: I see. Regardless? Y: Yes, but they did say that they, of course, they would subscribe for the one and five-eighths. HMJr: Yes. Y: Now, all the other large banks, they all thought that one and five-eighths would be better. HMJr: Uh - - huh. Y: And they also, it was the consensus of opinion that maybe this - these two issues - neither one of them would appeal to the outsider very much. 136 - 3 - HMJr: They would not. Y: And, as I said, very few indicated there would be very much of a demand from the outside investors. HMJr: I see. Y: And - but they thought that the certificates though at sixty-five, why, there should be a lot of those sold to non-banking investors. HMJr: To be - to non-what? Y: To non-banking investors. HMJr: The certificate at sixty-five? Y: Yes. I was surprised at that, but that was what I received from - oh - eight of them. HMJr: They think a lot of them would go to non-bankers? Y: Yes, at sixty-five hundred. HMJr: Is that right? Y: That appealed to them very much, that 1s, appealed to the banks. HMJr: Is that right? Y: And, of course, the war-loan accounts are low now and the banks are very eager to subscribe to the limit. HMJr: Uh - huh. Y: And with - judging from what I - from the con- versation today and last week, why I believe that as far as this district is concerned, it would be better to more or less treat this is as abank issue and have it the regular forty-eight hours instead of the week. HMJr: I see. Y: And - HMJr: Well, can - 137 - 4 - Y: And all - I talked to the Indiana National and the Iowa Des Moines, the largest banks in each state, and the First Wisconsin in Milwaukee, the First National in Chicago and the Conti- nental and all the, and the other smaller banks, and the consensus of opinion, outside of the three I mentioned is the one and five-eighths was the one that would go over. HMJr: Well, now, can you see any harm if we'd leave open the note - uh - for a week. Y: Well, the only danger is that they . - uh - they're afraid it might hurt the market, because they wouldn't know where they were going on that. HMJr: Uh - huh. Y: That, that would be the only thing, and we .... HMJr: Uh - huh. Y: .... and, of course, if we had something for the Victory Fund Committee that would be, they could use all the time. HMJr: Yeah. Y: Well, for example, something like your tax - your tax note revision, why .... HMJr: Uh - huh. Y: .... I think that they'd have plenty to do. HMJr: You mean .... Y: I don't believe that they could sell very many in a week to non-banking investors. HMJr: Uh - huh. Y: And there's four or five of them that indicated that they might sell the 1-1/48 to non-banking investors better than the 1-5/8s. HMJr: Really. Y: Yes. And there were a few companies they knew of that had some funds - a million or 80 - lying idle and probably would rather have the '45 than the "47. 138 - 5 - HMJr: Uh - huh. Y: That is, the non-banking proposition would probably appeal to - the 1-1/4s would appeal more than the 1-5/8s. HMJr: Well, after you've heard it all, Mr. Young, what would you advise me? Y: Well, I believe that I would just treat it as a bank issue this time and keep it open the two days, and I believe you'll have your three billion without any trouble. HMJr: Well, which would you do on the note? Y: Well, I'd have the 1-5/8s. HMJr: Uh - huh. Y: Because in checking with the smaller banks, from five to ten million, the last two weeks, I've found out that they are looking to rates rather than to maturity. HMJr: Yes. Y: Maybe that's wrong, but they're doing that. HMJr: Uh - huh. Y: And the 1-5/8s, anything over 1-1/2 would appeal to the banks outside Chicago. HMJr: I see. Y: Buta 1-1/4 wouldn't appeal to them very much. HMJr: Uh - huh. Y: They're looking to yields, rather than to maturity .... HMJr: Uh - huh. Y: .... and their loans are going down and they are looking for yields now - they're worrying about their profits. HMJr: Uh - huh. Okay. 139 - 6 - Y: All right. HMJr: Thank you. Y: Yes, sir. All right. 1 140 - 2 - H.M.JR: He said that he contacted a lot of banks and they all wanted the one and five-eighths, with the exception of the Northern of Chicago, the City National of Chicago, and the Manufacturers of Detroit. They wanted one and a quarter. The rest concurred. MR. BELL: I am surprised at the Northern Trust. MR. BUFFINGTON: So am I. MR. BELL: They are a short bank; they would like that one and five-eighths coupon, I should think. H.M.JR: They didn't. MR. BELL: I did not get what he said about the market - that the shorter note would affect the market. H.M.JR: No, leaving it open. MR. BELL: That is right. MR. BUFFINGTON: I was unable to reach Harry Stuart. He is out of town and could not be reached until tomorrow. MR. BELL: Bob Rouse says the New York banks want this one and five-eighths, although Repp says that he thinks we will get more subscriptions to the one and a quarter. H.M.JR: Say that again. MR. BELL: The New York banks want one and five- eighths. H.M.JR: Because I like '47. I would like to get it out then. What month would that be? MR. BELL: June, he said. Regraded Unclassified 141 - 3 - MR. HAAS: That is pretty rich, we figured. MR. BELL: I told Bob that I thought June was rich. He said he thought it would sell around ten or eleven on the chart, but he did not think there would be any premium at all. MR. HAAS: No, you cannot put on a premium these days. MR. MURPHY: However, it would be a ten or eleven on the chart. (The Secretary held a telephone conversation with Mr. Chester C. Davis, as follows:) 142 September 8, 1942 2:52 p.m. HWr: Hello. Operator: Chester Davis. HWr: Thank you. Operator: Go ahead. HMJr: Hello. Chester Davis: Hello, Henry. HMJr: How are you, Chester? D: All right. HMJr: What do they think out there? D: The banks in the cities that we talked to, and that's all the cities of any consequence in the district, believe that the one and a quarter shorter note would be preferred here. HMr: I see. D: Now out in the - out in the country banks, and that probably wouldn't be more than one fifth I would say of our - of our bank market HMJr: Your bank what? D: They probably - the country banks probably would go for the yield - the one and five-eighths HMJr: Yeah. D: ... but the more important bank market - I'm talking now banks first, would prefer the shorter note. HMJr: Yes. D: And that's fairly unanimous, I understand. HMJr: I see. D: Now, as far as corporations are concerned, there - 2 - 143 isn't any great deal of - of preference that we've been able to uncover as between the short and the long. That is, the long wouldn't be particularly more attractive as to yield to off-set the longer market risk HMJr: I see. D: .... and there's no reason for going to the longer note as far as the corporations are con- cerned. HMJr: I see. D: The certificate, of course, needs no comment. I think it will go all right - go fine. HMJr: Yeah. D: Now, there's one thought I want to give. I don't think looking at it just from the standpoint of this district HMr: Yeah. D: .... that there'll be any advantage in holding open for the corporate or non-banking investors for the week. HMJr: I see. D: And particularly, Henry, if it's held open with the idea that we're going to thru the efforts of the Victory Fund Committee accomplish any - any great deal of big and new investments in this issue. HMJr: Yes. D: We could get - we're well organized and we could get to all of the corporate and individual inves- tors who might be reached in a shorter period. Say, if it were held open until - as a compromise - to Saturday for both bank and non-bank, and we could get over everybody in the district and I'm not sure but what we could do it if it was held open just for two days. HMJr: Well, have you talked to any of your people on your Victory Fund? 144 - 3 - D: Yes. Yes, we've talked to all of the regional - representatives of all the main regional committees that have any prospects at all, outside of banks in their districts. HMJr: And they don't - warm up to it? D: No, they - they could go to town probably on your tax note with its redeemable features and we hope that something of that sort comes through. HMJr: Yeah. D: And it - it isn't a case of not warming up particu- larly, but over most of these - the individuals could be handled better by the F's and G's and the corporations, those that we could reach, we can reach inside of the two-day period anyway HWr: Yeah. D: .... or two and a half. HMJr: I see. Well, anyway that's what you think and ... D: And that's what you want. HMJr: .... and that's what I want. D: That's right. HMJr: OKay. Thank - thank-you. D: Anything else? HMJr: Not today. D: How are the tax notes coming? HMJr: Very good, oh, you mean as to getting ready? D: Are you getting ready? HMJr: Yeah, but we didn't think we'd do anything on them, until this financing was over. D: Yeah. HMJr: We don't want to mix them up. 145 - 4 - D: No, that's right. Well, we hope to give you something good to work good on them, Henry. HMJr: Well, we'll be ready just as soon as this financing is over. D: All right. Now is the amount of this - I don't know whether you're - you've given us any indication how big this is going to be - these notes and ....... HMJr: A billion and a half of each. D: That's what we thought. HMJr: Yeah. D: All right. HMJr: Thank you. D: Thank you, very much. 146 - 4 - H.M.JR: They do not think very much - they think about as much of your Victory Fund Committee as my tax plans. (Laughter) MR. BUFFINGTON: St. Louis is one of the poorest markets in the country for that kind of paper. H.M.JR: How about Chicago? MR. BUFFINGTON: Chicago, I should think, would be much better. H.M.JR: They did not seem to be very hot for it. MR. BUFFINGTON: I am afraid they are both trying to let nothing interfere with the tax note sales later on. H.M.JR: I still think my spendings tax plan is good, and I still think it is good to keep something open for a week to let these boys go to work on. If you do not keep chewing on fairly hard food, your teeth fall out - if you do not chew on something hard. We have got to give these fellows something besides pap. MR. BUFFINGTON: I am surprised that he says the one and five-eighths in Chicago would go better for corporations, if I understood him correctly. H.M.JR: No, no, he did not say that. He said that the corporations like the short stuff - that the interest rate did not make any difference, and that the corporations would take the shorter stuff. MR. HAAS: Mr. Secretary, on the increase in bills, since April 30, only ten percent have gone outside the banks. MR. BELL: Only ten percent? MR, HAAS: Yes. H.M.JR: The increase-- 147 - 5 - MR. HAAS: The increase since April 30. H.M.JR: Have gone to non-banking? MR. HAAS: Ten percent to non-banking investors; twenty-seven percent, New York City; thirteen percent, Chicago, making a total of forty; and fifty percent to banks outside New York and Chicago, adding up to ninety. The balance has gone to outside the banking system - - one percent Mutual Savings; insurance companies, one percent; and all others eight percent. H.M.JR: What do you deduce from that? MR. HAAS: I thought you were under the feeling that mor e went out. MR. BELL: Well, more of the outstanding. MR. HAAS: That is right. MR. BELL: You take the total outstanding and you get a higher percentage. MR. HAAS: That is right. And on the certificate, Dan, you asked - or the Secretary - - on the last one, seventy-five percent of the last one to commercial banks. MR. MURPHY: That is subscriptions. That is the August subscriptions. 148 September 8, 1942 3:00 p.m. FINANCING Present: Mr. Bell Mr. Buffington Mr. Haas Mr. Murphy Mr. Baker Mr. Sproul Mr. Alfred Williams Mr. Ransom Mr. Piser Mr. McKee Mr. Thomas Mr. Szymczak Mr. Draper, H.M.JR: A little birdie told me you were all separated as to ideas. (Laughter) MR. RANSOM: Complete unanimity. H.M.JR: This would be & good time for me to ask the Federal Reserve Banks for their advice. (Laughter) MR. RANSOM: Just give us a little advance notice, will you? H.M.JR: I tried to put one over on you fellows today. I called up Young and Davis and asked them to call me back at quarter of three today, which they did. Who is the spokesman for this group? MR. RANSOM: Mr. Sproul. MR. SPROUL: What do you want to know, Mr. Secretary? (Laughter) 149 - 2 - H.M.JR: What I would like to know is, how can I raise three billion dollars, starting Thursday, most effectively and economically? MR. SPROUL: We have considered it since we last met with you, and considered it again from noon on, today, and we are, I think, wholly in accord with the idea of a certificate of indebtedness issue for 8. billion and a half dollars, which would mature May 1 and bear a rate of six five. We think you could appropriately go to the decimal system of quoting such short-term securities as the certificates, and that it gives a little more leeway and a little finer touch in gauging your market. On the other billion and a half of the financing, we considered two possible items, the one and a quarter percent obligation, which falls about two and a half years or two and three-quarters years, which we recom- mended the other day; and we also considered & longer note - a four and a half or five-year note, which pre- sumably would carry a one and five-eighths percent coupon. Our judgment still is that the one and a quarter percent note would be the better obligation for this offering - - that it would be less of a conflict in the possible October financing in the bond area, and it would avoid the market area which has been the weakest in recent weeks, that is, the long note market and the short bond market. We understand that there is a considerable group of the larger banks, both New York City and Chicago, which have a preference for the longer note. We doubt if that preference extends outside the principal money centers. We think that they are either interested in something short, or else in getting an even higher coupon than one and five-eighths; that they would wait for your October financing, So that we come back to the one and one-quarter percent note for a billion and & half, to go with your certificate of indebtedness for a billion and a half. (Mr. Draper entered the conference.) Regraded Unclassified 150 - 3 - MR. SPROUL: On the various points in connection with the financing, we considered again the question of possibly leaving the books open for a longer period and enabling others than banks to subscribe in full and having the banks underwrite the remainder. We do not think that this issue, which is aimed more largely at the banks than at any others, lends itself particularly to that sort of offering, and we think it would be better to preserve that sort of an innova- tion for the larger financing of October, when you would have a piece of merchandise which could be sold effectively within the longer period that the books were open. We considered the question of possible split pay- ments for these two issues, and think that would be desirable. It would enable you to take the money more nearly when you need it, and with less disturbance to the money market, 80 that you could call for payments, say, on the certificates one day, and payment on the notes four or five days later. We continue to be in accord and wholly in agree- ment with the idea of increasing your bill issue to four hundred million with the next issue to be announced Friday, and to be dated the 16th. I think, in general, that sums up our ideas on the September financing. H.M.JR: Well, of course last week you people were all off the '47. You said that was the weakest point. MR. SPROUL: We were, and we still are. We still think it would be preferable to go for the one and one- quarter percent note, which we think would do best at two and a half years, but could be done at two years and nine months. MR. BELL: Did I understand you to say you were against leaving the books open for the note? Regraded Unclassified 151 - 4 - MR. SPROUL: Yes, we do not think that this issue lends itself to that sort of treatment; that it is an innovation which could be much better put in when you have an issue which we could expect to get substantial results from having the books left open anda sales campaign. MR. BELL: You do not think the Victory Fund Committee could sell many of these outside the bank- ing system? MR. SPROUL: No. H.M.JR: On the one and a quarter, what are you recommending? MR. SPROUL: We say it would do best on two years and six months, that is, to March of '45, but you could do it for two years and nine months - to June of '45, which has a slight advantage of not being - of being the nearest to an open date that you have in that area. H.M.JR: Is there enough margin to go to June, '45? MR. SPROUL: It would be pretty close to the line. It would be about par to par two on the figures, I think, if we went to June of '45. MR. BELL: There is a bond in June of '45 that is callable. MR. HAAS: We were figuring just at par even, at two. MR. SPROUL: It is about on the par line for June. We think it would do better in March, certainly. H.M.JR: Are these your figures or Baker's? MR. HAAS: Those are ours. Baker's were about the same thing. 152 - 5 - H.M.JR: Have you got some figures? MR. BAKER: Yes, sir, I have. I am a little more optimistic, but not an awful lot. (Chart handed to the Secretary by Mr. Baker.) H.M.JR: I talked to Chicago and St. Louis, and I did not get the same thing from both places. Hap Young said that about two-thirds of the banks he spoke to wanted the one and five-eighths. MR. SPROUL: I think you will get the same reaction from the New York City banks, that more of them would want the one and five-eighths than would want the one and one-quarter. H.M.JR: Because if we are going to announce this new tax note - we have got & Bell schedule, now - we will do this just as soon as this thing is over. We could start the Victory Fund on that next Monday. MR. BELL: You mean if you did not keep the books open? H.M.JR: Yes, if we did not keep the books open. MR. SPROUL: There again, if you kept the books open, or tried to tackle the non-banking market with this note offering, which I do not think it is possible to do very effectively, you would then run into a com- petition with your intensive effort on the modified tax note, which they really could go to town on, I think. MR. BUFFINGTON : I agree that offering this one and a quarter and emphasizing the market outside the banks, would affect the offering of the tax notes. I am a little more optimistic about the interest of corporations on the one and a quarter than anyone I have heard here indicate. H.M.JR: Wouldn't corporations also be interested in this new tax note? Regraded Unclassified 153 - 6 - MR. BUFFINGTON: Yes, they would. H.M.JR: That would be open continuously. MR. BUFFINGTON: If you are going to only leave this open for & day, then I doubt the effectiveness of the Victory Fund Committee. H.M.JR: I would not ask them to do anything. I would much rather get them all set to start next Monday on the tax note. MR. BUFFINGTON: They will do a better job on the tax notes than on the one and & quarter. H.M.JR: That would be something for them to sell steadily. MR. BUFFINGTON: Right. H.M.JR: Who else? Let's start with Szymczak. What do you think? MR. SZYMCZAK: Allan has told the story one hun- dred percent. H.M.JR: McKee? MR. McKEE: That is all right. H.M.JR: They have got you down, have they? (Laughter) MR. McKEE: I am waiting until you pull out these Bell schedules on me. That is what I am waiting for. (Laughter) MR. RANSOM: Save him the strain. (Laughter) H.M.JR: Draper? MR. DRAPER: I am holding my fire. 154 - 7 - H.M.JR: Nobody is interested. I am talking about the three billion dollars. MR. DRAPER: Oh, well, I think what Allan said is correct as far as I am concerned. H.M.JR: How about Philadelphia? MR. WILLIAMS: I think if you asked the Victory Fund Committee to get in on this note, you would have three jobs for them in four or five weeks which would be a rather heavy task - rather continuous. MR. BUFFINGTON: They seem to be wanting a big task. - different from what they have been talking about in the past. MR. WILLIAMS: Not all of them. There is something to be said for intermittent effort, there, rather than a steady job. H.M.JR: How does the Federal Reserve Board feel? MR. RANSOM: Fine. I think this is really an excellent program for September. It is all right. I cannot find any fault with it at all. H.M.JR: This is where we were this morning until I talked to Bob Rouse and he started - beginning to hear that people wanted the '47. MR. SPROUL: I talked with him at noon. He said that was the report of the bigger banks in the market and he thought it ought to be seriously considered in the light of their opinion. And I, having seriously considered it, still do not think they are right. (Laughter) MR. McKEE: How much of this issue are they going to buy, anyway? You are talking about a billion and a half dollars - you are talking about New York, how much are they going to take? 155 - 8 - MR. BELL: Not very much. H.M.JR: But Chicago, Young said one and five- eighths. Now, the only banks that he talked to that did not want one and five-eighths- the three banks that did not were the Northern Trust of Chicago, the City National of Chicago, and the Manufacturers of Detroit. They wanted one and 8. quarter, and all the others wanted one and five-eighths. MR. McKEE: For two years and six months? MR. SPROUL: That does not mean they will not take some one and a quarters, because they will. They will take one and a quarters, too, perhaps not 80 many as they would take of one and five-eighths. On the other hand, I think the banks outside of New York and Chicago would take a short obligation, one and a quarter, or they will wait for the two's, or whatever they are going to get in October. MR. BELL: Wouldn't the country banks take the one and five-eighths? MR. SPROUL: I think they will be pretty much waiting for what they will get in October, which they think will be & better coupon. MR. McKEE: The country banks aren't much note- minded, Dan. MR. BELL: How about the preferred allotment? That is, wouldn't you consider that in subscriptions outside the bank? MR. SPROUL; We considered that along with hold- ing the books open. There again, we think this financing, which is aimed so largely at the banks, could better be done in the ordinary way, without any special innovations, continuing the twenty-five thou- sand full allotment, and that would take care of it. You could use these innovations to better advantage on your big October issue in the bond area. 156 - 9 - H.M.JR: How about raising the amount of twenty- five thousand? MR. SZYMCZAK: Raising it beyond twenty-five? H.M.JR: Yes. MR. SZYMCZAK: To any particular figure - - fifty thousand? H.M.JR: Fifty thousand, say. MR. SZYMCZAK: Personally, I would have no objec- tion. H.M.JR: Do many take the twenty-five? MR. BELL: We had sixty-nine million, I think, on the last one. The big one was the bond - - a hundred and ninety-six million dollars. MR. McKEE: Don't you think that would be a good thing to preserve for a big issue? Any chance of changing - wouldn't it be better to do it in the pro- posed issue of October, instead of this one? MR. BELL: I think the twenty-five thousand limit pretty well takes care of the banks that we intended it for. We intended it for the small country banks. You wouldn't want to go beyond that. MR. McKEE: Wouldn't the twenty-five thousand limit apply to both certificates and notes in these two issues? MR. BELL: Yes. MR. McKEE: In other words, then, the limit is fifty thousand, almost. MR. BELL: For the aggregate, yes. 157 - 10 - H.M.JR: What you all really want to know is - you are all interested in these tax anticipation notes. MR. McKEE: That is right. MR. SPROUL: We are interested in the September financing, but we have & continuing and abiding interest in the tax anticipation notes. (Laughter) H.M.JR: Now, what is the latest schedule? The Bell? MR. SZYMCZAK: Has Bell got some rates? MR. BELL: Just for want of a better title-- MR. HAAS: And he hopes it rings. (Laughter) MR. McKEE: What are your rates, Mr. Bell? MR. MURPHY: The rates in the Bell schedule are five, seven, eight, nine, ten, ten, which in decimals are sixty, eighty-four, ninety-six, one point zero eight, one point twenty, one point twenty. It averages ninety-eight for the period. That compares with one point fourteen in the Board's original proposal; one point zero four in the Szymczak proposal; and ninety for the five, six, seven, eight, nine, ten. MR. McKEE: The Murphy schedule. (Laughter) MR. BELL: I believe that Bob Rouse changed one figure in that schedule and it came out exactly at one. MR. McKEE: I think your last - when you come out at one, I think you jump your ninety-six sooner. I think you go from five to eight. MR. BELL: Yes, five, eight, nine, ten, ten, ten, I think he said. I do not see any sense in going over one. It would be all right with me. 157 - 10 - H.M.JR: What you all really want to know is - you are all interested in these tax anticipation notes. MR. McKEE: That is right. MR. SPROUL: We are interested in the September financing, but we have a continuing and abiding interest in the tax anticipation notes. (Laughter) H.M.JR: Now, what is the latest schedule? The Bell? MR. SZYMCZAK: Has Bell got some rates? MR. BELL: Just for want of a better title-- MR. HAAS: And he hopes it rings. (Laughter) MR. McKEE: What are your rates, Mr. Bell? MR. MURPHY: The rates in the Bell schedule are five, seven, eight, nine, ten, ten, which in decimals are sixty, eighty-four, ninety-six, one point zero eight, one point twenty, one point twenty. It averages ninety-eight for the period. That compares with one point fourteen in the Board's original proposal; one point zero four in the Szymczak proposal; and ninety for the five, six, seven, eight, nine, ten. MR. McKEE: The Murphy schedule. (Laughter) MR. BELL: I believe that Bob Rouse changed one figure in that schedule and it came out exactly at one. MR. McKEE: I think your last - when you come out at one, I think you jump your ninety-six sooner. I think you go from five to eight. MR. BELL: Yes, five, eight, nine, ten, ten, ten, I think he said. I do not see any sense in going over one. It would be all right with me. Regraded Unclassified 158 - 11 - MR. McKEE: You don't, Dan? MR. BELL: I think it would be better if we had & bargain, ninety-eight cents. (Laughter) MR. McKEE: Don't you think you are going to have some bargains later on? MR. BELL: Probably. H.M.JR: Look where Ruml got with his plan - Macy's. MR. McKE E: In the dog house. (Laughter) H.M.JR: I don't know - he gets lots of publicity. I forgot that he is your president. MR. SPROUL: He is chairman of the Board. H.M.JR: What I ought to do is sit down and write the Board a letter and say I would like to know whether this is the Board's opinion. (Laughter) MR. SPROUL: What their opinion is of the Ruml plan? MR. SZYMCZAK: You mean the New York Board? H.M.JR: Does Mr. Ruml speak for the Federal Re- serve Bank of New York? MR. SPROUL: No, he does not on tax matters, but I think you will find the board of directors of the New York Bank were unanimously in favor of his proposal. (Laughter) H.M.JR: I am thinking of going up tomorrow. I am going to raise Ruml - skip two years - and see if I can't get popular. (Laughter) MR. SPROUL: We considered again the tax savings note, Mr. Secretary. 159 - 12 - H.M.JR: Here comes another one, now-- (Laughter) MR. SPROUL: And we again feel that if you want to make this a dual-purpose note, you ought to give the kind of rates which would bring people in at the beginning, and that, think, requires rates approximat- ing market rates for the first year or year and abalf, and then you should have rates which have considerable attraction to hold them in to the maturity. The kind of funds you are going. after, idle funds, which the holder does not know how long he will have no need for, are funds which need to be brought in by an issue which is approximately the equivalent of a market issue, and which has a sugar coating at the end which will hold him in for as long as possible. The schedule of rates which we originally suggested would do that, we think, and enable us to make a very substantial sale of these obligations. In our discussions with your staff there was a question about what the effect of those - whether we weren't making it too sweet, and what the effect of those rates would be on existing short-term rates. We were not so much concerned as they were. We did not think that those rates would have an upsetting influence on your short-term rates, because of two or three saving features: the fact that banks could not use them for cash conversion privileges; the fact that there is still, whether it is rational or not, same considerable desire for fully marketable obligations; and the fact that we have established and are supporting a rate structure in that market which would prevent any serious disturbance to the market. We do not say we know just the best schedule of rates to do this job, but we do believe that the sucdess of the job, as far as a big selling campaign, and a big sale outside the banking systèm is concerned, would be jeopardized by rates lower than the second schedule, which some of our members suggested, which gave an average of one hundred and four for the whole period, which approximated market rates during the first year and which then, while going below market rates, carried the bait for continued withholding, which the demand feature provides. Regraded Unclassified 160 - 13 - H.M.JR: Now, who else of our guests wants to speak on this? MR. RANSOM: I am still very much in favor of the original schedule which comes out at the one point fourteen figure, I think very largely for the reasons that Allan has stated. I think, if we are going to do this job, making this tax note a dual-purpose note and trying to get it out of the strict limitations of a tax note, that the rates had better be adequate to do the job. I certainly could not undertake to tell you exactly what schedule would do it, but one point fourteen was thought out rather carefully, and after much discussion, it seemed to us, collectively, that that would produce the result. I still very strongly favor the one point fourteen rate. H.M.JR: Williams? MR. WILLIAMS: I think the schedule has to be related to the volume. I hesitate to go along on the original estimate, which was somewhere between a half a billion and a billion, unless we maintain the original. With the Szymozak rate, I think we could do the job - how much, I would hesitate to say. I think, when you get down to Mr. Murphy's sche- dule it is not going to yield much beyond that that would be forthcoming for tax purposes. I think we would have a difficult time merchandising it. It would be pioneering in a new field, and I think there is something to be said for an attractive rate. So, personally, I would not want to go below that so-called compromise schedule", which is one point zero four. MR. BELL: You do think a pretty good job could be done at the one point zero four? MR. WILLIAMS: I think 80. I think if we got to work immediately on that - certainly I think your decision to cast the die immediately is a good one, be- cause I think we are losing time. I think if we got into it next Monday and worked vigorously, I think we could do an acceptable job. 161 - 14 - H.M.JR: Draper? MR. DRAPER: I am in favor of the one fourteen, Mr. Secretary, because I think that that would really do the job in a way that we all would feel was effec- tive. Anything less than that, it seems to me, would be taken out in a lowered amount of sales. It all de- pends on how much we need the money. It seems to me we need the money. H.M.JR: McKee? MR. McKEE: Well, I will repeat what I said here before, that I think when you go to Murphy's rates you eliminate the dual possibilities of this note. If that is what you contemplate, then I would much rather see you go back to a two-year note, point seven two, and have a tax note, leaving that field clear for other short-time paper. MR. SZYMCZAK: I much prefer the first suggested schedule of rates, that is, the average of one fourteen; as a second choice, the modified rate which averages one point zero four, relating it to volume and tendency to hold. H.M.JR: Piser? MR. PISER: My preference would be for the one fourteen, but I think, with the one point zero four, you could still sell a substantial volume. I do not think it is possible to determine these rates very exactly. It is sort of a guess, at best, but I think either the one fourteen or the one point zero four, would bring in a substantial volume of funds. MR. SPROUL: There has been reference to the Murphy rates, which I think, at the present sitting, are the low of the field. The schedule Mr. Bell suggested, which comes out either ninety-eight or one - we are getting pretty close together there, and certainly it seems to me to accomplish the dual purpose of both the tax note and to sop up idle funds. 162 - 15 - We ought to weight it on the side of making it an attractive obligation, and to hold back from one point zero four to give one, does not seem to me to meet the situation as a dual-purpose attempt. H.M.JR: There is very little difference between what Bell is suggesting and what Szymczak is suggest- ing. MR. BELL: I was just attempting to get under the one, I will admit. (Laughter) H.M.JR: There is very little difference. MR. SPROUL: We think there is just enough differ- ence to be - and I say again, you cannot be dogmatic about these things - we think there is enough difference to be the difference between doing a big job, a rela- tively big job, on sales to others than banks, and just having another tax note with some added features, which would go about as they have been going. H.M.JR: You mean that as to what Bell has suggested and Szymczak - you mean there is a difference between success and failure? MR. SPROUL: Not between success and failure, but we have already come back from one fourteen to one point zero four when we talk in the terms of the Szymczak obligation, which is the measure of our re- treat from what we think would do the best job possible. So we are getting onto ground where we think we are getting out of the dual-purpose note and into the purely tax note, with some added features, when we get down that far. And we do not believe that a note with those rates and that average of rate for three years is going to be upsetting to your short-term market, which is the chief concern, as I understand it, that some of your people have had. MR. THOMAS: I think I agree with the position that has been stated. I do not think there is such a thing as failure on this, anyhow. Any of the rates would bring in a lot of money. It is just a question 163 - 16 - of how much you want to get in from this type of thing without upsetting the short-term market. In these ranges, any of the suggestions would fit into that picture. Therefore, the higher you go within that range the more of a success it will be. MR. BELL: Do you think the corporations are 80 much interested in rate, or are they more interested in liquidity? MR. THOMAS: I think they have some ideas as to what rate - there is a marginal point there. They have an idea as to what rate they are interested in - below that they will just pay out. MR. BELL: I think they are interested in that thirty-day demand money. MR. McKEE: No doubt your banker friends have told you this, Mr. Secretary, but they did tell it to us, that they expect hesitation on the part of some national treasurers of buying this because of the notice feature to get their money, and that therefore, they would prefer, whether or not rate-minded, to get market paper in order not to have to serve notice to withdraw their funds. That has been presented by, I think, Ned Brown, and others. That would be a selling point against this tax note. MR. BELL: That will compete with the certificate. MR. SZYMCZAK: Yes, to an extent, but the competi- tion will not be quite 80 strong if you get it up closer to one fourteen. The one fourteen, of course, they will be much more likely to hold. MR. BELL: They would be foolish to buy the certi- ficate at one fourteen if-- MR. WILLIAMS: In our district not many of them are buying it, so it is not a case of keeping them out of the one, but rather inducing them to come into the other. I would agree with you that liquidity would come first with the people we have talked to. 164 - 17 - MR. DRAPER: I think, also, that a corporation would be much more interested in this because they could see the direct relationship to their plan and paying the taxes, whereas, if they buy a certificate it becomes an operation which is more in the line of banking rather than corporation practice. (The Secre- tary and Mr. Sproul conferred together.) H.M.JR: There is nothing confidential, but I just find it difficult to talk to 80 many people at one time. What I have asked is this, we have gone as far as I can without consulting with my own people, which I would like to do, and I will try to make up my mind this afternoon. As to the other financing, in which you people evidently are not interested, unless something changes - I am seeing the President in the morning, and I think it will be the way we talked about - the sixty-five and the May, '45. It sounds all right. MR. BELL: March, '45. H.M.JR: Yes, and I think as long as we can get together - as long as so many people think there is 8. disadvantage to leave it open, I think we will settle it tonight, this tax anticipation, then get the stuff out and get the Victory Fund Committee started on the new tax anticipation notes on Monday. We are very close together. It is just a question of - I would like to talk- MR. SZYMCZAK: Mr. Secretary, you still have - of course, you can work that out wi th your staff - you still have the question of whether this will be effective as of September 1 or 15, or October 1? MR. BELL: We can do that. We will have to let the people who have bought them since then exchange them. MR. SZYMCZAK: They have bought quite a bit. MR. BELL: Twenty-seven million. Regraded Unclassified 165 - 18 - MR. SZYMCZAK: For this month, which is quite a bit. MR. BELL: Twenty-seven million nine-hundred thousand. MR. McKEE: One thing I would like to say is that I would like to see - you gentlemen that are close to these Victory Fund Committees would know better than I - I would like to see that they have, before they start, the goods to sell - that they are available to them and supplied. H.M.JR: You mean the pieces of paper? You mean - well, if we made up our minds tonight-- MR. BELL: They won't be available. It would take about ten days. It would be about a week from-- H.M.JR: Heffelfinger said & day or two. MR. BELL: No, the circular and everything - they would be delayed delivery. MR. McKEE: What do you think of that? Do you think that these boys can sell delayed deliveries? MR. SPROUL: Yes. MR. BUFFINGTON: The most important thing is getting the right kind of circular in the hands of each executive manager. MR. BELL: That can go out Saturday. MR. SPROUL: And the right kind of obligation. (Laughter) H.M.JR: I have never seen 80 much interest! (Laughter) MR. SZYMCZAK: We are all taxpayers. Regraded Unclassified 166 - 19 - H.M.JR: I know you all are, but this is - why are you all so interested? I mean-- MR. RANSOM: Speaking for myself, I would rather like to see this a great success, and I think it can be. MR. DRAPER: That is my feeling, Mr. Secretary. MR. RANSOM: I think it is very important that it should be & success. I think it gives you something that you can lean on for many long months, and perhaps years, if you establish this. As to the rate interfer- ing with your short-term rate, I assure you, as far as I am concerned, that was no part of my thinking in recommending the rate I did. If I thought it was going to affect it I might have a different view, but I haven't been able to think that. MR. SPROUL: I think I speak for all of us, that we are not trying to slide in an increase in short- term rates under cover of this tax note. There is none of that in it at all. H.M.JR: It only would rebound on you. MR. SPROUL: That is all, because we are working with you on the present schedule, unless it is changed, so it will just come back on us. M H.M.JR: Well, I have got what you have in mind, and I will give very serious consideration to it, and I want it a success. MR. McKEE: And you want to make it a two-purpose piece of paper, don't you? H.M.JR: Definitely, and I want your enthusiasm, too. So between now and the time the sun goes down, we will decide. Place your bets outside. (Laughter) 167 September 8, 1942 3:45 p.m. FINANCING Present: Mr. Bell Mr. Buffington Mr. Haas Mr. Murphy Mr. Baker H.M.JR: Sit down and we will settle this. What he is saying here is that they would like the Szymozak proposal. See? MR. BELL: They would? H.M.JR: They would settle for that. MR. BELL: They don't like it but would settle for it? H.M.JR: No. He said they would take it. MR. BUFFINGTON: I think they would settle for it. MR. BELL: I would take it. MR. BUFFINGTON: So would I. H.M.JR: The only difference is this, that theirs is five, eight, nine, ten, ten, ten; and what we had, so-called Bell's, was five, seven, eight, nine, ten, eleven. MR. MURPHY: The eleven is the Morgenthau variation to the Bell proposal. MR. BELL: That is one percent. I don't think there is enough difference to quarrel about. 168 - 2 - H.M.JR: Would you start at the five? Everybody agrees on the five; everybody starts at five. Now, what do you do at the end of one year? They go to eight. MR. HAAS: That is ninety-six. MR. MURPHY: Those are six months' graduations, Mr. Secretary. H.M.JR: They are all the same? MR. MURPHY: Yes. H.M.JR: They go to eight, then they go to nine, as against our eight; and then they run to ten. MR. BELL: That is the Szymczak rate? H.M.JR: Yes. They said they would take it. MR. BELL: I think that will be an inducement, and they will hold it after they get it. I think I would accept it. It doesn't cost us much money. H.M.JR: I would like to make the last six months eleven. MR. HAAS: That wouldn't cost you much, and it would make them happy, too. H.M.JR: I would like to go five, eight, nine, ten, ten, eleven. MR. BELL: That would raise Szymczak to about one point zero six. That would make them still happier. MR. MURPHY: I would like to make the general remark that all these rates we have been speaking of, both the Reserve Board and ourselves, are simple 169 - 3 - arithmetical averages; and when the circular is computed the final figure will probably be about one basis lower as a result of it being compounded. MR. BELL: You mean instead of one point zero six it will be one point zero five, or something like that? MR. MURPHY: Yes. MR. BAKER: I think there is a lot to be said for putting the last period a little bit higher than the others. I like the psychology of it. It would keep them from turning it in unless they actually buy them for tax purposes only. H.M.JR: Of course the Federal Reserve had eleven cents the last three years. They lay con- siderable stress on that eight, do they? MR. HAAS: Yes. They have argued with us about that. H.M.JR: Of course it makes, really, 80 little difference. It is a question of enthusiasm. MR. BUFFINGTON: You do get more sales enthusiasm for that little bit more you give them. MR. BELL: You get support from the Federal. That is five, eight, nine-- H.M.JR: Wait a minute, go five, eight, nine, and then ten - how much more expense if we made the last two things eleven? MR. BELL: That would be one point zero eight, wouldn't it, Henry? MR. MURPHY: Each time you raise one it increases it point zero two. If you make the last two, elevens that would make it one zero eight. Regraded Unclassified 170 - 4 - MR. BELL: And it would come out compounded about one point zero seven. MR. HAAS: Then you have a schedule between Szymczak. H.M.JR: I am going to say now, five, eight, nine, and then make he last eleven. Let's just talk about the two year and the two and a half year-- MR. MURPHY: You will have two tens then? H.M.JR: Yes. MR. MURPHY: That would be one point zero six, probably compounded down to one point zero five, or possibly one point zero four. MR. BELL: Two elevens? MR. MURPHY: No, one eleven. The Szymczak is one point zero four; raising the last ten to eleven; one point zero six; if you raise the last two tens you get one point zero eight. H.M.JR: I am going on the theory if you want to hold those fellows - I don't know, to make it interesting for them-- MR. BELL: I think that would make them very happy about it. It wouldn't cost you very much money. H.M.JR: It wouldn't cost me very much. MR. HAAS: In fact, if you give them the Szymczak it will make them feel good. H.M.JR: I am just thinking - I want them to go to town. MR. BELL: They will be more enthusiastic on the one point zero eight. We are getting closer to their one point fourteen baby. -- 171 - 5 - H.M.JR: What do you think? It is now five, eight, nine, ten, and the third year is eleven. It is just a question of what to make the two and a half. It makes & difference of five hundred million dollars. MR. BELL: You mean total subscriptions it might make that difference? H.M.JR:. Yes. MR. BELL: Who said that? H.M.JR: From five hundred to a billion dollars - it might make a difference how we price this thing. MR. BUFFINGTON: Mr. Secretary, as I remember their statement this will increase it from five hundred to a billion. MR. BELL: Well, then, I would give them the benefit of the doubt. I would make the last two elevens. H.M.JR: This is the way I feel. The way I feel right now is that I would like the thing to be success- ful, you see, and if the Fed - they had five, originally, then to nine, and this goes to eight. The third year was ten, and this is to nine; the second year they had eleven, and this is to ten. Then it is under all the way down the line. MR. BELL: Except the last two. MR. MURPHY: It is one cent under during the three after the five. MR. BUFFINGTON: But the two last elevens are the things they have been laying a lot of importance on as the thing that would hold them into the third year period. Regraded Unclassified 172 - 6 - MR. BAKER: How about making the last two elevens & ten and & twelve? It still leaves you with the same rate, doesn't it? MR. MURPHY: Yes. H.M.JR: Would it? MR. HAAS: Yes. MR. BELL: Do what? MR. BAKER: Instead of having two elevens for the last two years, make it another ten and a twelve. H.M.JR: You mean make it ten, twelve, twelve? MR. BAKER: Ten, ten, twelve. That really gives them an extra piece of icing if they wait. It still leaves you with the same cost as two elevens. MR. HAAS: One thing to be said against that, Sproul has definitely committed himself about taking care of the short-term rates, but that last six months is higher than anything he has suggested. H.M.JR: No, it is the same as the original Federal Reserve suggestion. MR. MURPHY: He means Baker's proposal is higher. H.M.JR: That is right. They had three elevens, though. This certainly would give them on the end there, a two and a half in the third year, an induce- ment to stick, wouldn't it? MR. BELL: If there is anything to that. H.M.JR: And under the present money market, too. MR. BAKER: It is well under. 173 - 7 - H.M.JR: How much notice do they have to give to cash them in? MR. MURPHY: Thirty days. MR. BELL: And they do not get any interest until after six months? MR. MURPHY: If they redeem it after six months they get interest for the six months; but if they redeem it within the first six months they get no interest. H.M.JR: And a lot will do that, too. MR. MURPHY: Any of these will only provide an inducement to hold if your only alternative is to put the cash in the bank or into Governments. If you are contemplating taking the money out to put into business, no rate would provide any substantial inducement to hold. H.M.JR: How do you feel, Victory Fund? MR. BUFFINGTON: I think, going back, that the original seventy-two hundredths as just a tax note will sell considerably better than you could sell at forty-eight hundredths. When you make it a dual- purpose note and give these men a little enthusiasm because they have a more flexible security to sell. In the case of the tax note as it stands now the average corporation wants to buy just up to their tax requirements. This makes it & little more flexible, and I think the men will go at it with a great deal more enthusiasm and do a good job if you are somewhere on the Szymczak plan. H.M.JR: You are inclined to two elevens at the end? MR. BELL: Yes. 174 - 8 - H.M.JR: Let's make it five, eight, nine, ten, eleven, eleven. MR. BELL: Yes. H.M.JR: Will you tell them, Dan? MR. BELL: Yes. I will go right to work on it. H.M.JR: Did Sproul go back to the Fed or did he go to the train? MR. BELL: You probably could catch him at the plane. H.M.JR: Five, eight, nine, ten, eleven, eleven. MR. BELL: I think they will be very pleased. H.M.JR: That will surprise them. Now, they will be ready for Monday. MR. BUFFINGTON: Can we tie some good publicity into this regular announcement to get these boys off to & good start? H.M.JR: Let's see what you can do, but you can't have any publicity until Monday morning. If you tell anybody this, it will kill our regular financing. So don't tell anybody downstairs. Don't tell anybody in your shop about this. This is on this floor. Don't - tell them anything downstairs at all. MR. BUFFINGTON: O.K. H.M.JR: You can start working on your publicity on Saturday. MR. BELL: We really ought to put it out Saturday, hadn't we? 175 - 9 - H.M.JR: For Monday morning, yes. But I don't want any leaks. I don't want any leaks. He can write this stuff at home in longhand, or something like that, and then give it to the newspapermen Saturday for Monday morning release. MR. BUFFINGTON: That means we won't have any circular other than the official circular available by Monday? MR. BELL: Yes. If we are telling the Federal now, that is a little dangerous. H.M.JR: All right, tell them I won't make up my mind until Saturday. Does that show lack of confidence? MR. BELL: I think you could tell Allan and Ronald and tell them that you don't want any publicity. H.M.JR: Oh, they talk like a bunch of-- MR. BELL: Why don't we wait until Friday night, then, to tell them? MR. HAAS: I don't quite see the big danger. I don't want to see it leak out, but I don't see the danger. The other thing is almost entirely a banking job. The banks can't buy this. MR. BAKER: There is no point in taking the risk. H.M.JR: There are too damned many leaks all the time - leaks, leaks, leaks. MR. BELL: George doesn't see any hurt if there is a leak. H.M.JR: I don't like leaks. There were leaks all last week on my tax stuff. All week long there were leaks. And Allan, if I tell him he then feels he has got to tell the others. Regraded Unclassified 176 - 10 - MR. BELL: Probably. MR. HAAS: There is no harm in holding up your decision. MR. BELL: Why don't we just hold it until Friday night after we have closed the books on the other? H.M.JR: That will be Saturday morning. MR. BELL: No, you will announce-- H.M.JR: But if you announce it Friday, people don't put their stuff they have got until twelve o'clock Friday night-- MR. BELL: They will have it in the mail by closing time. H.M.JR: What is the harm in telling them Saturday morning? MR. BELL: None. They will be very pleased to get it. They canwait that long. H.M.JR: I mean there seems to be so much anxiety and interest in this thing. I don't think they can keep their mouths shut. MR. BELL: Let's wait until Saturday. H.M.JR: I mean they will tell this fellow - who is it who writes this bond letter? MR. BELL: Goldsmith. H.M.JR: He will know it - he will know it within the hour. I am surprised that he hasn't known of it before this. Regraded Unclassified 177 - 11 - You don't think their feelings willbe hurt? MR. BELL: No, I don't think 80. MR. BAKER: They will be so glad to see the rate that they won't worry about it. H.M.JR: I will let it go until Saturday morning. There are too many leaks. MR. BUFFINGTON: You know there has been a good deal of discussion at the Fed and here about the whole tax note thing. H.M.JR: If everybody keeps their mouths shut between now and Saturday morning-- MR. BELL: I am surprised it hasn't been out before because your telegram suggested the change in the tax notes. MR. HAAS: The Secretary cautioned them very strongly in that wire. MR. BUFFINGTON: It is your decision that the Victory Fund will do nothing on the certificates and the notes? H.M.JR: I think we have got to trust Sproul. I think we had better trust Sproul. We can't have him as your fiscal agent and not trust him. You got what I said we would do - what was it? MR. BELL: Five, eight, nine, ten, eleven, eleven. That is one point zero eight. (The Secretary attempted to reach Mr. Sproul on the telephone but was unable to.) H.M.JR: Let me sleep on this, as to how we are going to tell them. We will tell nobody tonight. 178 Chica (fift 8,1942 certificate 65 due may 1st payable Sept 21st note /4 due marchs 1945 City hayable 15/8 June 47 1 Chicago - young chester Haves (larger) shorter 14 matter Chicago Godfily not of chicago mant - Detroit 178 5 St. A Louis chester Davis 8 Banks (larger) prefer shorter fort. Country BKs want 15/8, mile may 10 10 9 $ 00 burda 7 11 10 11/0 1,0 .90 1,04 11 9 " 10 50 bbao 179 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE TO Secretary Morgenthau September 8, 1942 FROM Davis L. Baker, Jr. Possible New Issues, dated September 15, 1942 Certificate of Indebtedness Approx. Due Market Coupon Term Date Yield Price Premium 3/4% 7 1/2 mos, 5/1/43 0.65 $1,000,620 $620/1/11 Treasury Notes 1 1/4% 2 yrs. 3 mos. 12/15/44 1.10 100 11/32 11/32 1.14 100 8/32 8/32 2 yrs. 6 mos. 3/15/45 1.14 100 9/32 9/32 1.18 100 6/32 6/32 2 yrs. 9 mos. 6/15/45 1.18 100 6/32 6/32 1.22 100 3/32 3/32 1 1/2% 3 yrs. 9 mos. 6/15/46 1.38 100 14/32 14/32 1.42 100 9/32 9/32 4 yrs. 9/15/46 1.42 100 10/32 10/32 1.46 100 5/32 5/32 1 5/8% 4 yrs. 6 mos. 3/15/47 1.53 100 14/32 14/32 1.57 100 8/32 8/32 4 yrs. 9 mos. 6/15/47 1.57 100 8/32 8/32 1.61 100 2/32 2/32 1 3/4% 4 yrs. 9 mos. 6/15/47 1.57 100 26/32 26/32 1.61 100 20/32 20/32 5 yrs. 9/15/47 1.61 100 21/32 21/32 1.65 100 15/32 15/32 180 Treasury Bonds 1 3/4% 5 yrs. 9/15/47-49 1.70 100 8/32 8/32 1.72 100 5/32 5/32 2% (Chart reading indicates that a 2% bond could not be placed farther out than 12/15/49, coincident with the outstanding 2's of 12/15/49-51 now quoted 100 5/32 bid. A reopening of this issue would undoubtedly result in a decline to par for all three 2% bonds of 49-51) 2 1/4% 12 yrs. 9/15/54-56 2.20 100 17/32 17/32 13 yrs. 9/15/55-57 2.22 100 11/32 11/32 -2- 181 Possible New Treasury Issues (Based on Closing Bid Prices, September 5, 1942) : Estimated : : Yield : Probable : Basis : Price : : (Percent) Certificates .65 percent .65 100.000 due May 1, 1943 (7-1/2 months) 70 percent .65 100.031 due May 1, 1943 (7-1/2 months) Notes 1-1/4 percent 1.16 100-6/32 due December 15, 1944 (2 years - 3 months) 1-1/4 percent 1.21 100-3/32 due March 15, 1945 (2 years - 6 months) 1-1/4 percent 1.25 100 due June 15, 1945 (2 years - 9 months) 1-5/8 percent 1.55 100-11/32 due June 15, 1947 (4 years - 9 months) 1-5/8 percent 1.59 100-5/32 due September 15, 1947 (5 years) Bonds 1-3/4 percent 1.70 100-8/32 due September 15, 1947-49 (5 years - 7 months) Treasury Department, September 8, 1942. Division of Research and Statistics. Regraded Unclassified Mistaas gair this thaps on Tuesday Sign Regraded Unclassified 183 Calendar of Direct and Guaranteed Bonds, Notes and Certificates V August 15, 1942 (In millions of dollars) Fixed maturities Callable issues 2/ Description First callable Date Final maturities Direct Guaran- teed Direct Guaran- teed Direct Guaran- teed 1942-Jan. Feb. Mar. Apr. May June July July Aug. Sept.15 Note 2% 342 Oct.15 RFC 7/8% 320(T) Nov. 1 Certificates 1/2% 1,507(T) Dec.15 Note 1-3/4% 232 Total 2,081 320 1943-Jan. Feb. 1 Certificates 5/8% 1,585(T) Mar.15 Note 3/4% 166(f) Apr. May 1 000 3/4% 289 June15 Note 1-1/84 629 June15 Bond 3-3/86 (1943-47) 454 July15 RFC 1-1/86 324(T) Aug. i Certificates 7/8% 1,609(T) Sept.15 Note 1% 279 Oct.15 Bond 3-1/4% (1943-45) 1,401 Nov. Dec.15 Note 1-1/8% 421 Total 4,592 613 1,855 1944-Jan. Feb. 1 USHA 1-3/8% 114 Mar.15 Note 1% 515 Mar.15 FINC 3-1/4% (1944-64) 95 Apr.15 Bond 3-1/46 (1944-46) 1,519 Apr.15 RFC 15 571(T) May 1 HOLO 3% (1944-52) 779 May 15 FFMC % (1944-49) 835 June15 Note 3/4% 416 July Aug. Sept.15 Note 1% 283 Sept.15 Note 3/4% 635(T) Oct. Nov. Dec.15 Bond 4% (1944-54) 1,037 Total 1,849 685 2,556 1,709 1945-Jan. Feb.15 000 1-1/8% 412(T) Mar.15 Note 3/4% 718 Apr. May June 1 HOLO 1-1/2% (1945-47) 755 July Aug. Sept.15 Bond 2-3/46 (1945-47) 1,214 Oct.15 Bond 3-1/4% (1943-45) 1,401 Nov. Dec.15 Bond 2-1/2% 541 Dec.15 Note 3/4% 531(T) Total 1,790 412 1,214 755 1,401 2 Taxable issue, bonds, FEA debentures, and issues for which an exchange offer has been made and Excludes special issues, issues redeemable at option of holder, Postal Savings 3/ Gallable issues with respect to which a definite notice of call has been made accepted by the bulk of the holders. are listed as fixed matorities. Regraded Unclassified 184 Calendar of Direct and Guaranteed Bonde, Notes and Certificates August 15, 1942 (In millions of dollars) Fixed maturities Callable issues 2/ Description First callable Date Final maturities Direct Guaran- Direct Guaran- teed Direct Guaran- teed teed 1946-Jan. 1 Conversion 3% 16 Feb. Mar.15 Note 1% 503(T) Mar.15 Bond 3-3/44 (1946-56) 489 Apr.15 Bond 3-1/4% (1944-46) 1,519 May June15 Bond 3% (1946-48) 1,036 June15 Bond 3-1/8% (1946-49) 819 July Aug. Sept. Oct. Nov. Dec.15 Note 1-1/2% 1,118(T) Total 1,637 2,344 1,519 1947-Jan. 1 Conversion 3% 13 Feb. Mar. Apr. May June 1 HOLO 1-1/2% (1945-47) 755 June15 Bond 3-3/8% (1943-47) 454 July Aug. Sept.15 Bond 2-3/4% (1945-47) 1,214 Oct.15 Bond 4-1/4% (1947-52) 759 Nov. Dec.15 Bond 2% 701 Total 714 759 1,668 755 1948-Jan. Feb. Mar.15 Bond 2% (1948-50) 1,115(T) Mar.15 Bond 2-3/46 (1948-51) 1,223 Apr. May June15 Bond 3% (1946-48) 1,036 July Aug. Sept.15 Bond 2-1/2% 451 Oct. Nov. Dec.15 Bond 2% (1948-50) 571 Total 451 2,909 1,036 1949-Jan. Feb. Mar. Apr. May 15 FFMC 3% (1944 49) 835 June15 Bond 3-1/8% (1946-49) 819 June15 Bond 2% (1949-51) 1,014(T) July Aug. Sept.15 Bond 2% (1949-51) 1,292(T) Oct, Nov. Dec.15 Bond 26 (1949-51) 2,098(T) Dec.15 Bona 3-1/8% (1949-52) _491 Dec.15 Bond 2-1/2% (1949-53) 1,786 Total 6,681 819 835 2 Taxable issue. bonds, TEA debentures, and issues for which an exchange offer has been made and Excludes special issues, issues redeemable at option of holder, Postal Savings Callable issues with respect to which a definite notice of call has been made accepted by the bulk of the holders. are listed 4a fixed maturities. Regraded Unclassified 185 Calendar of Direct and Guaranteed Bonds, Notes and Certificates 1/ August 15, 1942 (In millions of dollars) Fixed maturities Callable issues Date Description First callable Final maturities Direct Guaran- teed Direct Guaran- teed Direct Guaran- teed 1950-Jan. Feb. Mar:15 Bond 2% (1948-50) 1,115(T) Apr. May June July Aug. Sept.15 Bond 2-1/2% (1950-52) 1,186 Oct. Nov. Dec.15 Bond 2% (1948-50) 571 Total 1,186 1,686 1951-Jan. Feb. Mar.15 Bond 2-3/4% (1948-51) 1,223 Apr. May June15 Bond 2% (1949-51) 1,014(T) June15 Bond 2-3/4% (1951-54) 1,627 July Aug. Sept.15 Bond 24 (1949-51) 1,292(T) Sept.15 Bond 3% (1951-55) 755 Oct. Nov. Dec.15 Bond 24 (1949-51) 2,098(T) Dec.15 Bond 2-1/4% (1951-53) 1,118 Dec.15 Bond 2% (1951-55) 510(T) Total 4,010 5,627 1952-Jan. Feb. Mar.15 Bond 2-1/2% (1952-54) 1,024(T) Apr. May 1 HOLC 3% (1944-52) 779 June15 Bond 2-1/4% (1952-55) 1,501(T) July Aug. Sept.15 Bond 2-1/2% (1950-52) 1,186 Oct.15 Bond 4-1/4% (1947-52) 759 Nov. Dec.15 Bond 3-1/8% (1949-52) 491 Total 2,525 2,436 779 1953-Jan, Feb. Mar. Apr. May June15 Bond 2% (1953-55) 725 July Aug. Sept. Oct. Nov. Dec.15 Bond 2-1/2% (1949-53) 1,786 Dec.15 Bond 2-1/4% (1951-53) 1,118 Total 725 2,904 T Taxable issue. Excludes special issues, issues redeemable at option of holder, Postal Savings bonds, FHA debentures, and issues for which an exchange offer has been made and accepted by the bulk of the holders. Callable issues with respect to which & definite notice of call has been made are listed are fixed maturities. Regraded Unclassified 186 Calendar of Direct and Guaranteed Bonds, Notes and Certificates 1/ August 15, 1942 (In millions of dollars) Fixed maturities Callable issues 2/ Description First callable Date Final maturities Direct Guaran- Direct Guaran- teed Direct Guaran- teed teed 1954-Jan. Feb. Mar.15 Bond 2-1/2% (1952-54) 1,024(T) Apr. May June15 Bond 2-3/44 (1951-54) 1,627 June15 Bond 2-1/46 (1954-56) 681 July Aug. Sept. Oct. Nov. Dec.15 Bond less (1944-54) 1,037 Total 681 3,688 1955-Jan. Feb. Mar.15 Bond 2-7/8% (1955-60) 2,611 Apr. May June15 Bond 2-1/46 (1952-55) 1,501(T) June15 Bond 2% (1953-55) 725 July Aug. Sept.15 Bond 3% (1951-55) 755 Oct. Nov. Dec.15 Bond 2% (1951-55) 510(T) Total 2,611 3,491 1956-Jan. Feb. Mar.15 Bond 3-3/44 (1946-56) 489 Mar.15 Bond 2-1/2% (1956-58) 1,449(T) Apr. May June15 Bond 2-1/4% (1954-56) 681 July Aug. Sept.15 Bond 2-3/4% (1956-59) 982 Oct. Nov. Deo. Total 2,431 1,170 1957-Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Total T Taxable issue, Excludes special issues, issues redeemable at option of holder, Postal Savings bonds, PHA debentures, and issues for which an exchange offer has been made and 2/ Callable issues with respect to which a definite notice of call has been made accepted by the bulk of the holders. are listed as fixed maturities. Regraded Unclassified 187 Calendar of Direct and Guaranteed Bonda, Notes and Certificates 1/ August 15, 1942 (In millions of dollars) Fixed maturities Callable issues 2/ Date Description First callable Final maturities Direct Guaran- teed Direct Guaran- teed Direct Guaran- teed 1958-Jan. Feb. Mar.15 Bond 2-1/2% (1956-58) 1,449(T) Apr. May June15 Bond 2-3/4% (1958-63) 919 July Aug. Sept. Oct. Nov. Dec. Total 919 1,449 1959-Jan. Feb. Mar. Apr. May June July Aug. Sept.15 Bond 2-3/4% (1956-59) 982 Oct. Nov. Dec. Total 982 1960-Jan. Feb. Mar.15 Bond 2-7/8% (1955-60) 2,611 Apr. May June July Aug. Sept. Oct. Nov. Dec.15 Bond 2-3/4% (1960-65) 1,485 Total 1,485 2,611 1961-Jan. Feb. Mar. Apr. May June 1 Panama 3% 50 July Aug. Sept. Oct. Nov. Dec. Total 50 T Taxable issue. Excludes special issues, issues redeemable at option of holder, Postal Savings bonds, FHA debentures, and issues for which an exchange offer has been made and Callable issues with respect to which a definite notice of call has been made accepted by the bulk of the holders. are listed as fixed maturities. Regraded Unclassifie 188 Calendar of Direct and Guaranteed Bonds, Notes and Certificates 1/ August 15, 1942 (In millions of dollars) Fixed maturities Callable issues 2/ Date Description First callable Final maturities Direct Guaran- teed Direct Guaran- teed Direct Guaran- teed 1962-Jan. Feb. Mar. Apr. May June15 Bond 2-1/2% (1962-67) 2,118(T) July Aug. Sept. Oct. Nov. Dec. Total 2,118 1963-Jan. Feb. Mar. Apr. May June15 Bond 2-3/4% (1958-63) .919 July Aug. Sept. Oct. Nov. Dec. Total 919 1964-Jan. Feb. Mar.15 FFMC 3-1/4% (1944-64) 95 Apr. May June July Aug. Sept. Oct. Nov. Dec. Total 95 1965-Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.15 Bond 2-3/44 (1960-65) 1,485 1,485 Total T Taxable issue. Excludes special issues, issues redeemable at option of holder, Postal Savings bonds, FHA debentures, and issues for which an exchange offer has been made and Callable issues with respect to which a definite notice of call has been made accepted by the bulk of the holders. are listed as fixed maturities. Regraded Unclass 189 Calendar of Direct and Guaranteed Bonds, Notes and Certificates 1/ August 15, 1942 (In millions of dollars) Callable issues 2/ Fixed maturities First callable Final maturities Date Description Guaran- Guaran- Guaran- Direct teed Direct teed Direct teed 1966-Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Total 1967-Jan. Feb. Mar. Apr. May June15 Bond 2-1/2% (1962-67) 2,118(T) July Aug. Sept.15 Bond 2-1/2% (1967-72) 2,716(T) Oct. Nov. Dec. 2,716 2,118 Total # 2,716(T) 1972-Sept.15 Bond 2-1/2% (1967-72) 1/ T Taxable issue. issues, issues redeemable at option of holder, Postal Savings made Excludes bonds, FHA special debentures, and issues for which an exchange offer has been and 2/ accepted Callable by issues with respect to which a definite notice of call has been made the bulk of the holders. are listed as fixed maturities. Unclassified 190 VIA FEDERAL RESERVE TELETYPE -- URGENT. SEPT. 8, 1942 Mr. C. S. Young, President, Federal Reserve Bank, Chicago, Illinois. WOULD YOU MAKE INQUIRIES AROUND YOUR DISTRICT AS TO WHETHER THERE IS ANY OUTSTANDING MAN WHO COULD HELP THE TREASURY and PARTICULARLY THE VICTORY FUND COMMITTEE WITH PUBLICITY. PLEASE ADVISE ME. HESRY MORGENTHAU JR. 191 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE SEP 8 1942 TO FROM Mr. M Haas Secretary Morgenthau The attached tables and charts bring up to date information prepared last month on the sale of savings bonds and the operation of the payroll savings plan. Large colored copies of the charts have been hung in the Chart Room. Attachments Regraded Unclassified 192 Sales of United States Savings Bonds Monthly, May 1941 to August 1942 (In millions of dollars) : : : Month : Series : Series : E Total : F&G 1941 May 100.6 249.2 349.8 June 102.5 212.0 314.5 July 145.3 196.9 342.1 August 117.6 148.0 265.6 September 105.2 127.1 232.3 October 122.9 147.9 270.7 November 109.5 124.0 233.5 December 341.1 187.5 528.6 1942 January 667.4 393.2 1,060.6 February 398.0 305.2 703.2 March 337.6 220.3 557.9 April 326.7 203.8 530.5 May 421.8 212.6 634.4 June 433.2 200.7 633.9 July 508.1 392.7 900.9 August 454.0 243.3 697.3 Office of the Secretary of the Treasury, Division of Research and Statistics. September 3, 1942. Note: Figures are rounded to the nearest million and will not necessarily add to totals. SALES OF UNITED STATES SAVINGS BONDS Monthly. May 1941 to Aug. 1942 DOLLARS DOLLARS Millions Millions 1000 1000 Series Fand G All Series Series E 800 800 600 600 400 400 200 200 o o MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC. JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. 1941 1942 193 Office of the Secretary of the Transary - of - - - B-329 Regraded Unclass 194 Number of Series E Savings Bonds of Each Denomination Sold Monthly, May 1941 to August 1942 Denomination : $25 : : $50 : $100 : : $500 --- $1,000 (Estimated number of units - in thousands) 1941 May 336 162 259 54 65 June 431 192 293 55 60 July 530 239 388 81 88 August 553 238 355 64 65 September 595 246 351 59 59 October 700 267 379 64 62 November 725 262 360 57 53 December 2,661 1,062 1,284 216 181 1942 January 3,846 1,469 1,802 370 355 February 2,807 880 1,152 183 167 March 3,529 901 1,056 151 122 April 4,055 946 1,074 145 116 May 5,618 1,258 1,357 172 130 June* 6,808 1,350 1,347 153 111 July 8,268 1,599 1,552 188 142 August* 8,528 1,540 1,359 146 103 Office of the Secretary of the Treasury, September 3, 1942. Division of Research and Statistics. # Preliminary. Regraded Unclassified NUMBER OF SERIES E BONDS OF EACH DENOMINATION SOLD MONTHLY May 1941 to Aug. 1942 $25 DENOMINATION $50 DENOMINATION $500 DENOMINATION Mil. Mil. Thous. 400 8 1.2 300 7 .8 200 100 6 .4 0 M J S N J M M J S 5 0 1941 1942 SrWWrNSOW 1941 1942 4 $1.000 DENOMINATION $100 DENOMINATION Thous. 3 Mil. 400 1.5 300 2 1.0 200 I .5 100 0 0 0 M J S N J M M J S M J S N J M M J S MJSNJMMJS 1941 1942 1941 1942 1941 1942 the of the Secretary of the Transary B-331 195 - - - - - Regraded Uncla Progress of Payroll Savings Plans for War Savings Bonds Estimated; Monthly, December 1941 to August 1942 : 1941 : : : 1942 : : Dec. : Jan. Feb. : Mar. Apr. May June : July : Aug. Number of firms participating: (Numbers are units) 1. Firms with 5,000 or more workers 100 355 448 467 470 475 477 481 484 2. Firms with 500-4,999 workers. 430 1,622 2,780 3,674 4,573 4,768 4,956 5,099 5,266 3. Firms with 100-499 workers... 3,495 7,059 11,172 13,770 16,216 18,169 19,718 21,038 22,375 4. Firms with under 100 workers. 5,914 8,477 20,080 32,209 50,427 67,006 82,948 95,275 108,767 Total number of firms 1/... 9,939 17,513 34,480 50,120 71,686 90,418 108,099 121,893 136,892 Number of workers in firms participating: 1. Firms with 5,000 or more (Numbers are millions) workers 1.6 5.8 7.3 7.6 7.7 7.8 7.8 7.8 7.9 2. Firms with 500-4,999 workers. .6 2.2 3.8 5.0 6.4 6.5 6.7 6.8 7.0 3. Firms with 100-499 workers .8 1.7 2.6 3.2 3.8 4.3 4.6 4.9 5.2 4. Firms with under 100 workers. .2 .2 .5 .8 1.3 1.9 2.2 2.5 2.7 Total number of workers 1/.. 3.2 9.9 14.2 16.7 19.2 20.5 21.3 22.0 22.8 Office of the Secretary of the Treasury, September 3, 1942. Division of Research and Statistics. Excludes Federal, State and local Governmental organizations and their employees. Note: Figures in millions are rounded to the nearest million and will not necessarily add to the totals. Regraded Unclassified 197 PROGRESS OF PAYROLL SAVINGS PLANS FOR WAR SAVINGS BONDS Estimated: Monthly. Dec. 1941 to Aug. 1942 NUMBER OF FIRMS NUMBER OF WORKERS Total Mil. Total 8 400 6 Participating In Participating Firms 4 200 5.000 or more Workers 2 Firms, 5,000 or more Workers o 0 DJFMAMJJASO DJFMAMJJASO Thous. Mil. Total Total 8 6 Participating 6 4 4 In Participating Firms 2 2 500-4,999 Workers Firms, 500-4.999 Workers 0 o DJFMAMJJASO DJFMAMJJASO Thous. Mil. Firms, 100-499 Workers Total 8 Total 20 Participating 6 4 10 2 100-499 Workers In Participating Firms 0 0 DJFMAMJJASO D J F M A M J J A S o Thous. Mil. Firms, Under - Under 100 Workers 120 6 100 Workers Total 80 Participating 4 In Participating 40 2 Firms 0 0 DJFMAMJJASO D J F M A M J J A S O 1941 1942 1941 1942 - - the of the Transary B-332 - - - - Extent of Participation in Payroll Savings Plans for War Savings Bonds Estimated; Monthly, December 1941 - August 1942 : 1941 : 1942 : Dec. Jan. Feb. Mar. : : : Apr. : May June July Aug. (Numbers are units) I. Number of firms with plans 1/ 9,939 17,513 34,480 50,120 71,686 90,418 108,099 121,893 136,892 II. Workers in firms and Government agencies with plans: (Numbers are millions) a. Firms 3.2 9.9 14.2 16.7 19.2 20.5 21.3 22.0 22.8 b. Government agencies. - .6 .9 1.4 1.5 1.5 1.5 2.5 2.8 c. Total 3.2 10.5 15.1 18.0 20.7 22.0 22.8 24.6 25.6 III. Workers actually partici- pating in payroll sav- ings plans: (Numbers are millions) a. In participating firms 0.7 3.7 7.2 9.0 10.9 13.2 15.0 16.5 16.7 b. In participating Government agencies - .1 .4 .6 .7 .7 1.0 1.5 1.8 C. Total 0.7 3.8 7.6 9.6 11.6 13.9 16.0 18.0 18.5 Office of the Secretary of the Treasury, September 5, 1942. Division of Research and Statistics. Excludes Government agencies. Note: Figures in millions are rounded to the nearest million and will not necessarily add to the totals. 19 Regraded Unclassif 199 EXTENT OF PARTICIPATION IN PAYROLL SAVINGS PLANS FOR WAR SAVINGS BONDS Estimated; Monthly, Dec. 1941 to Aug. 1942 1942 FIRMS Thousands FIRMS 125 Firms with Plans Thousands 125 100 100 75 75 50 50 25 25 0 DEC. JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. 0 WORKERS WORKERS Millions Workers in Firms and Millions 30 Government Agencies with Plans 30 In Participating Government Agencies www 20 <<<<< www 20 In Participating Firms 10 10 0 0 DEC. JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. WORKERS WORKERS Millions Millions 20 Workers Actually Participating 20 In Participating 16 16 Government Agencies ANN 12 12 In Participating ..... Firms ...... 8 8 4 4 0 0 DEC. JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. 1941 1942 Office . - Secretary of the Insury B-333 - # - - - Regraded Unclassified 200 Estimated Deductions From Payrolls For Purchase of War Savings Bonds, Monthly December 1941 - August 1942 : Aggregate : Deduction as a : amount deducted : percentage of : (In millions : pay of workers : of dollars) : actually par- : : ticipating 1941 December $ 5 4.1% 1942 January 28 4.5 February 58 4.8 March 78 4.9 April 96 4.9 May 126 5.3 June 153 5.8 July 200 r/ 6.3 August* 225 7.2 Office of the Secretary of the Treasury, September 3, 1942. Division of Research and Statistics. 4 Preliminary. r/ Revised. 201 ESTIMATED DEDUCTIONS FROM PAYROLLS FOR PURCHASE OF WAR SAVINGS BONDS Monthly. December 1941 to Aug. 1942 1942 DOLLARS DOLLARS Millions Aggregate Amount Deducted Millions 200 200 150 150 100 100 50 50 0 0 DEC. JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT OCT. PERCENT PERCENT Deduction as a Percentage of Pay 7 of Workers Actually Participating 7 6 6 5 5 4 4 3 3 2 2 I I 0 0 DEC. JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT OCT. 1941 1942 the of the Secretary of the Transpy B-330 1 ] - 1 I CONFIDENTIAL 202 UNITED STATES SAVINGS BONDS - TOTAL Comparison of September sales to date with sales during the same number of business days in August and July 1942 (At issue price in thousands of dollars) : September : Cumulative sales by business days Date : daily : : : : : : September August September as sales : : July :percent of August September 1942 1 $ 19,162 $ 19,162 $ 26,267 $ 28,418 73.0% 2 24,558 43,720 65,032 52,687 67.2 3 27,702 71,422 92,055 79,964 77.6 4 28,482 99,904 117,890 126,495 84.7 5 29,880 129,784 158,341 157,605 82.0 ffice of the Secretary of the Treasury, September 8, 1942. Division of Research and Statistics. ource: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. CONFIDENTIAL 203 UNITED STATES SAVINGS BONDS - SERIES I Comparison of September sales to date with sales during the same number of business days in August and July 1942 (At issue price in thousands of dollars) : September : Cumulative sales by business days Date : daily : : : : : : September August September as sales : : July :percent of August September 1942 1 $ 11,634 $ 11,634 $ 14,044 $ 15,821 82.8% 2 14,748 26,381 36,222 30,701 72.8 3 18,305 44,687 50,797 47,523 88.0 4 17,804 62,491 63,785 77,320 98.0 5 19,166 81,657 86,789 95,044 94.1 Office of the Secretary of the Treasury, September 8, 1942. Division of Research and Statistics. Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. CONFIDENTIAL 204 UNITED STATES SAVINGS BONDS - SERIES y AND G COMBINED Comparison of September sales to date with sales during the same number of business days in August and July 1942 (At issue price in thousands of dollars) : September : Cumulative sales by business days Date : daily : : : : : sales : September : August : July September as :percent of August September 1942 1 $ 7,528 $ 7,528 $ 12,222 $ 12,597 61.6% 2 9,811 17,339 28,810 21,986 60.2 3 9.397 26,735 41,258 32,441 64.8 4 10,678 37,414 54,105 49,175 69.2 5 10,713 48,127 71,552 62,561 67.3 Office of the Secretary of the Treasury, September 8, 1942. Division of Research and Statistics. Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Note: Figures have been rounded to nearest thousand will not necessarily add to totals. 205 Sales of United States savings bonds CONFIDENTIAL September 1 through September 5. 1942 Compared with sales quota for same period (At issue price in millions of dollars) Series 1 I Series I and G : I Total Actual sales : Quota, : Sales I Actual sales : : Quota, : Sales I Actual sales I Quota, 1 Sales : Sept. 1 # Sept. 1 I to date : I Sept. 1 : Sept. 1 : to date # : Sept. 1 1 to : as $ of Sept. 1 I to date to 1 : Daily : to I : Daily : to : as $ of I Daily : to I to # as x of : date : date $ quota $ $ date 2 date : quota # I date 2 date I quote $ 11.6 $ 11.6 $ 14.9 77.9% 1 $ 7.5 $ 7.5 $ 6.9 108.7% $ 19.2 $ 19.2 $ 21.8 88.1% 14.7 26.4 34.5 76.5 9.8 17.3 16.6 2 104.2 24.6 43.7 51.1 85.5 3 18.3 44.7 55.5 80.5 9.4 26.7 26.4 101.1 27.7 71.4 81.9 87.2 17.8 62.5 81.0 77.2 10.7 37.4 35.6 105.1 28.5 99.9 116.6 85.7 5 19.2 81.7 98.3 83.1 10.7 48.1 42.2 114.0 29.9 129.8 140.5 92.4 8 143.3 58.1 201.4 9 168.8 67.8 236.6 10 193.4 76.7 270.1 11 220.6 84.4 305.0 12 239.2 90.1 329.3 14 272.7 99.7 372.4 15 288.2 105.0 393.2 16 307.6 112.1 419.7 17 327.2 119.2 446.4 18 350.1 125.7 475.8 19 365.4 130.5 495.9 1 399.6 141.0 540.6 22 415.7 147.0 562.7 23 436.2 155.2 591.4 24 457.1 163.4 620.5 25 481.4 171.0 652.4 26 497.4 176.6 674.0 28 532.7 188.7 721.4 29 549.2 195.5 744.7 30 570.0 205.0 775.0 ffice of the Secretary of the Treasury, Division of Research and Statistics. September 5, 1942 ource: Actual sales figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Figures have been rounded and will not necessarily add to totals. Note: Quota takes into account both the daily trend during the week and the monthly trend during the month. 205-A September 8, 1942 4:14 p.m. Walter Stewart: Hello, Henry. HM Jr: How are you? S: Very good. HM Jr: Walter, how did you like what the President said last night? S: I thought it was pretty good. HM Jr: You thought it was pretty good? S: I thought it was 8. little brief on taxation - I could have stood a little more on that. HM Jr: You and me both. S: It sounded to me as though something that had been omitted was now being included. That was my only explanation for it. HM Jr: Yeah. S: It was a bit of a brush-off on that. HM Jr: (laughs) It's an understatement but that, of course, is what we felt. Now what happened this morning here was that the committee voted down 12 to 0 my spending tax, and voted through about 12 to 6 George's tax on 8. 5% gross income tax. S: 5% gross income? HM Jr: Yeah. Which is 8. big help on keeping down inflation. S: Yeah. Well, that's a disappointment, Henry. I'm sorry. I think you made 8. real effort on that. Of course, it was licked, but you made a real try on that. 205B - 2 - HM Jr: Well, the way I feel - I am delighted that I had a plan, and as good a plan as that. S: Yes, you're right. HM Jr: I only would be downhearted today if they put some- thing through the committee and I hadn't made a - what I think 8. constructive suggestion. That's the way I feel. S: You're right. HM Jr: And as to being late, the criticism is just, but we just couldn't get around to it - - I mean in the sense that what was the right way to move. S: You're quite right. You haven't been dilatory; it has been busy times. HM Jr: Well, it has been very difficult to make up one's mind. S: That's right. HM Jr: I mean I feel that I am in the same boat as the President, and it has taken him up to October 1st or rather September 7th to decide what he is going to do on farm prices and labor. S: Yes. HM Jr: What? S: That's right. You had your mind made up on that some time ago. HM Jr: Yeah. I made a speech in Boston last September. S: That's right - a year ago. HM Jr: Yes, I made my speech then. S: That's right. Regraded Unclassified 205c - 3 - HM Jr: I have no regrets on this. S: No, I haven't either. I haven't. I thought the statement - your statement - I got copies of that - your statement and the one that went with it from Paul are both good documents. HM Jr: Did you see the one in the Sunday paper? S:- I did, yes, and I liked that, too. I wondered who did night work on that one. HM Jr: Well, that was Gaston and Kuhn. S: It was a good job. HM Jr: I thought so. S: I thought it was a very good job, 80 I think it has been handled with dignity and with great force. HM Jr: In view of what the President was going to do - hello? S: Yes. HM Jr: I mean from now until the 1st of October they have got to write that legislation S: Right. HM Jr: do you think anybody ought to make any trips? S: Well, I was wondering about that. It would seem to me to fall right in between a decision and no decision. HM Jr: Yeah. S: I mean if it were the sort of thing where you could say it had been dealt with, some one could feel free to go, but it is neither dealt with nor not dealt with, which is an awful twilight zone. 205D - 4 - HM Jr: Yeah. S: I'm no real judge of that, but it may be even more difficult after the 1st of October. HM Jr: You're 80 cheerful. S: I feel very cheerful. I am a little inclined to say that if you feel that you want to be there before sometime in November - the thing to do is to get away promptly. HM Jr: Yeah. S: That would be my inclination, Henry. Of course, I have not been very keen about this you know. HM Jr: Yeah. S: I think it is in a very uncertain position - - this whole thing now. HM Jr: Yeah. Well, that's that. S: All right. HM Jr: Okay. S: Henry, you're not going to need me this week, are you? HM Jr: No. S: Right. Goodbye. HM Jr: Thank you. S: It was nice of you to call. Bye-bye. HM Jr: Thank you. September 8, 1942. 206 4:45 P. a. Robert Patterson: Bob. HMJr: Did your family get home without being too cold? P. Yes. (Laughs.) HMJr: What? The little one was all right? P: Sure. HMJr: She's oute. P: Sat on my lap. HMJr: Well, that kept her warm. Bob, we enjoyed having you. P: Well, I enjoyed being there a great deal. HMJr: The President of the United States called me up about lunchtime yesterday. Uh, I'm only repeating what he said - I don't know why he does it through me - but he said that he'd heard that there were two buildings on the New Hackensack new Airport that were going to be torn down, and that would I please tell the Army that he'd like very much if they could leave them standing. One was the Woronock Inn... P: The What? HMJr: Woronock. W-o-r-o-n-o-ok P: Yeah. HMJr: He says it's the oldest Inn in Dutchess County. Then he said there was another half-timber, half- stone house - he couldn't say just what - but that he understood it was going to be torn down, uh, for the historic value. P: Yeah. HMJr: And he wondered if both of them couldn't be left standing, and the Army use them for headquarters or something. P: I'll find out. HMJr: I don't know, and I don't know why he did it through me, but... P: That's all right. HMJr: ...but I... 207 - 2 - P: You - you use it. HMJr: Pardon? P: You use it. You - you know most about it. HMJr: No. I - yeah, but this is something historical that the President is interested in, and ... P: Yeah. HMJr: It's - it's of no interest to me - the buildings. P: Is the Inn the place that you go past as you drive out of the place? HMJr: Yeah, that's the Inn. Yeah. It's - it was a nice, you know, two-story porch on it. P: I'll - I'll look into it right away. HMJr: And if you didn't mind letting me know I could pass the word back to him. P: Yes, sir. HMJr: Sorry to bother you. P: Not a bit. HMJr: Thank you. P: That's all right. I'll get it clean. HMJr: Thank you. P: Thank you, Henry. 208 THE SECRETARY OF THE NAVY WASHINGTON September 8, 1942 Dear Henry: Thank you for your note of the third enclosing your statement to the Senate Finance Committee. It is splendid and I sincerely hope that it brings the desired results. Sincerely yours, Frankshoon Honorable Henry Morgenthau Secretary of the Treasury Washington, D. c. INS 23 a W SEP 4 NATIONAL GALLERY OF ART SMITHSONIAN INSTITUTION WASHINGTON, D.C. September 2nd, 1342. My dear Mr. Secretary: I am deeply grateful to you for all that you did in making it possible for the National Gallery to ac- cept the gift of t:0 Midener Collection. It is very important for the Callery to acquire these works of art, and we all fuel it is largely due to you and your staff at the Treasury that many of the difficulties were overcome in connection with the ac- ceptance of the Collection. Mr. Cairns was both re- sourceful and untiring in his efforts, as were also Mr. Kuhn, Mr. Shea, and .r. Gilmore. I saw Kr. Widener yesterday and he is most appreciative of what you have done. Again with many thanks, I am Sincerely yours, Jand E finles. Director. Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D. C. Regraded Unclassified 211 September s, 1942 Dear General Allen: Thank you very much for sending me the pictures that were taken while I was st Fort Benning. I shall treasure them as reminders of a most impressive and inspiring day. I shall not need additional copies of any of these, but I notice that you did not include any photographs of the parachute training. If it is not too much trouble, would you mind sending no a few of these as well? With kind regards to you and Mrs. Allen, Sincerely, (Signed) H. Morgenthau, Jr. Brigadier General Leven C. Allen, Commandant, Infantry School, Fort Benning, Georgia. Pictures turned over to Mr. Kuhn 9/11/42 for album he is making of tour, also CC of letter. File in Diary FK/ogk Regraded Unclassified 212SEPS HEADQ ARTERS THE INFANTRY SCHOOL FORT BENNING GEORGIA August 31, 1942 Mr. Henry Morganthau, Jr. Secretary of the Treasury Treasury Building Washington, D. C. Dear Mr. Secretary: Here is a set of pictures taken while you were here at Fort Benning. I have thought you might like a set for your own use. If there are any of which you would like additional copies won't you let us know? INF. FOLLOWING SCH. Levenb Sincerely, LEVEN Brigadier C. ALLEN General allen Commandant, Infantry School RECORDED 2.0 September 8, 1942 213 TREASURY DEPARTMENT - TELETYPEWRITER SERVICE BUREAU OF CUSTOMS Customs Agency Service Baltimore, Md BA 64 Houston, Texas Ho 33 Los Angeles, Calif LA 439 New Orleans, La NO 498 New York, N. Y NY 1-1540 Norfolk, Ta NF 79 Portland, Ore PD 297 San Francisco, Calif SF 284 San Pedro, Calif SPD 7477 St. Paul, Minn STP 299 Seattle, Wash SE 146 Washington, D. C WA 381 Customs Patrol Bottineau, N. D BOTTINEAU, N D 16 Il Paso, Texas I P 18 Havre, Mont HAVRE MONT 15 Laredo, Texas LAREDO TEX 66 Nogales, Ariz NOGALES ARIZ 45 San Ysidro, Calif SAN YSIDRO CAL 372 Collectors of Customs Boston, Mass BS 132 Galveston, Texas GALV 51 Los Angeles, Calif LA 538 Miami, Fla. (Deputy) MM 87 New Orleans, La NO 378 New York, N. Y NY 1-2482 Philadelphia, Pa PH 732 Portland, Maine PO 367 Port Arthur, Texas PORT ARTHUR TEX 183 San Pedro, Calif S PD 7474 Savannah, Ga SV 44 Tampa, Fla TP 25 CHIEF CLERK, OFFICE OF Washington, D. C WA 168 *P. L. 950, between Treasury and Army Message Center (2 stations) Regraded Unclassified 214 FOREIGN FUNDS CONTROL New York, N. Y NY 1-1882 Washington, D. C VA 162 *P.L. 1321, between Treasury and Washington Building (2 stations) BUREAU OF NARCOTICS Chicago, Ill CG 820 Houston, Tex HO 38 New York, N. Y NY 1-2398 Washington, D. C WA 192 PROCUREMENT - LEND LEASE Allentown, Pa AN 14 Atlanta, Ga AT 97 Boston, Mass BS 220 Chicago, Ill CG-1484 Cleveland, o CV 324 Detroit, Mich DE 997 Louisville, Ky LS 579 New Orleans, La NO 160 New York, N. Y NY 1-1885 New York, N. Y NY 1-1460 Philadelphia, Pa PH 739 Pittsburgh, Pa PG 98 San Francisco, Cal SF 236 Seattle, Wash SE 103 Washington, D. C WA 30 Washington, D. C WA 31 Washington, D. C WA 32 Washington, D. C WA 33 Washington, D. C WA 137 *P.L. 2484, between Procurement Division Building and War Department (2 stations) SECRET SERVICE Atlanta, Ga AT 164 Boston, Mass BS 378 Chicago, Ill CG 803 Cleveland, o CV 582 Dallas, Tex DL 583 Detroit, Mich DE 430 Kansas City, Mo KC 88 Los Angeles, Cal LA 321 New York, N. Y NY 1-2139 Philadelphia, Pa PH 202 San Francisco, Cal SF 434 Seattle, Wash SE 271 Washington, D. C WA 194 Washington, D. 0 WA 195 215 SECRETARY, OFFICE OF THE Chief Coordinator, Treasury Law Enforcement Agencies Washington, D. C WA 542 TREASURER, OFFICE OF THE *P.L. 2572, between Treasury and Liberty Loan Building (2 stations) WAR SAVINGS STAFF Boston, Mass BS 576 Chicago, Ill CG 198 Cleveland, 0 CV 28 Detroit, Mich DE 792 Jefferson City, Mo JFSCY 370 Los Angeles, Cal LA 484 New York, N. Y NY 1-2269 Newark, N. J NK 482 Philadelphia, Pa PH 120 San Francisco, Cal SF 595 Washington, D. C WA 229 Washington, D. C WA 230 Washington, D. C WA 211 Total number of Teletypewriter Machines 92 Private Line teletypewriters are direct from one station to another. All other teletypewriters listed herein are TWX lines which go through an operator at the Chesapeake and Potomac Telephone Company. 216 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION CONFIDENTIAL DATE September 8, 1942 TO Secretary Korgenthau FROM Mr. Hase Subject: The Business Situation, Week ending September 5, 1942 Summary (1) National income payments in July rose to a new peak at an annual rate of $113.7 billions as compared with $112.1 billions in the previous month and only $75.8 billions in July 1940 when the defense program was in its initial stages. Income payments continued to rise more rapidly than living costs in July, and as a result the estimated purchasing power of national income payments also reached a new peak. (2) Further gains in salaries and wages in July were ac- companied by a rise in seasonally-adjusted retail sales for the first time since last January. Salaries and wages in July were 26 percent above year-earlier levels while retail sales were 3 percent lower, due in part to heavy declines in sales of automotive dealers, filling stations and other lines suf- fering from wartime restrictions and shortages. (3) Department store sales during the last week in August rose to the highest point since early last June. However, sales were still 14 percent below the corresponding week last year, when sales were benefitting from heavy advance buying and the earlier Labor Day holiday. The FRB adjusted index of department store sales in August advanced to 128 as compared with 121 in July and 104 in June. (4) The BLS price index of 28 basic commodities last week moved up moderately to the highest point since mid-July, due largely to advances in a number of uncontrolled commodities, particularly wheat, barley and rosin. A restraining influence was provided by a decline in livestock prices, due in part to an expansion in market receipts of hogs. (5) Employment in nonagricultural establishments rose to previous month and nearly 6,500,000 above the levels of July 1940. & new peak of 37,100,000 in July. This was 435,000 above the With employment still rising, and the armed services making heavy are increasing. At the same time a few centers, particularly inroads on manpower, threats to production due to labor shortages New York City, have a substantial number of unemployed workers. Regraded Unclassified 217 - 2 - National income payments at new high National income payments in July (seasonally-adjusted) reached a new high annual rate of $113.7 billions, as compared with $112.1 billions in the previous month. (See Chart 1.) In sharp contrast with this new record figure, the annual rate in July 1940, when the defense program was in its initial stages, was only $75.8 billions. Actual payments in July were slightly below the previous month, due to a decrease in interest and dividends. The decrease, however, was less than customary, resulting in the above-mentioned rise in the adjusted annual rate. Further expansion of salary and wage payments occurred in manufacturing, construction, and government service, 8.8 war expenditures continued to mount. Income payments continued to rise more rapidly than living costs in July, and as a consequence the purchasing power of national income payments moved up to a new peak. Reference to Chart 1 will disclose that after flattening out in the early part of the year, the purchasing power of national income payments moved noticeably higher in June and July. This has doubtless been an important factor in the recent up- turn in retail sales. Retail trade improved Seasonally-adjusted retail sales turned upward in July for the first time since last January, as salaries and wages, the dominant factor in national income payments, reached new peak levels. (See Chart 2.) Normally retail sales show a noticeable seasonal drop from June to July, but this year the decrease was limited to only 1 percent. In consequence, the Department of Commerce seasonally-adjusted index of retail sales rose 6 percent during the latter month. On an adjusted basis, all store groups showed gains over June, with apparel stores making the widest advance and automotive stores the smallest. Despite this improvement, total retail sales in July were still 3 percent below year-earlier levels, largely due to the sharp drop in sales of automotive stores. Filling stations, household furnishings stores, and dealers in hardware and building materials also reported declines. Sales of these four groups of stores, all suffering to a greater or less degree from restriction programs and goods shortages, were 37 percent below July 1941 levels. The remaining store groups, relatively unaffected by shortages, showed an aggregate sales gain of 18 percent over July 1941. Regraded Unclassified 218 - 3 - However, even this more favorable sales showing fell behind the corresponding gain in salaries and wages, which amounted to 26 percent. Thus, it will be seen that the relative lag in retail sales in the last year cannot be fully ascribed to goods shortages. Sales estimates for year 1942 compared with 1941 Table I shows recent Department of Commerce estimates of retail sales by types of stores for the year 1941, and projected estimates for 1942, with individual percentage changes. It will be noted that sales by drinking places heads the list, with an increase of 22 percent, with sales by jewelry stores and various types of food stores not far behind. At the bottom of the list, of course, are sales by retailers in the automobile and other durable goods industries. Commenting on the current retail sales outlook, the Department of Commerce says: "At the present time, consumers are saving at an unprec- edented rate. But many if not most of them are still comfortably situated with respect to supplies of the goods that would cause the greatest wrench to dispense with. Their own stocks are undoubtedly large and BO are those of retailers. This situation will before long become much less favorable as the output of many consumer. goods shrinks and as stocks of their own and those in retailers' hands are steadily exhausted. When the time comes for consumers to get along without items of food or clothing or other articles that have been woven into daily long-standing habits of consumption, then will come the real test. Consumers will at that time either forego established consumption patterns and increase the proportion of their incomes to be saved, or they will sacrifice savings and spend freely in a vain attempt to maintain their consumption habits in spite of the disruption of war. In this event, the pressure on price ceilings will be great." August department store sales rose more than seasonally Department store sales have been rising steadily during the past month and the gain over July levels has been more than seasonal. As a result, the FRB adjusted index of department store sales moved up to 128 in August from 121 in July and 104 in June. In the week ended August 29, department store sales were at the highest level since early last June. However, even this strong showing was 14 percent below the corresponding period last year, when sales were benefitting from heavy advance buying and the earlier Labor Day holiday. (See Chart 3.) Regraded Unclassified 219 - 4 - Reduction in consumer debt One of the several factors tending to restrain retail sales in recent months despite the rising tide of national income has been the application of funds to the liquidation of consumer debt. Thus a recent confidential report of the Federal Reserve Board estimated that consumer debt showed an average decline of about $400 millions per month in May, June and July. Debt repayment in those months was accelerated by the heavy reduction in charge accounts brought about by Amendment 4 to Regulation W. During the same period, however, installment cash loans were declining by more than $50 millions per month as compared with declines of about $35 millions in April and $25 millions in March. Retail installment paper for the past few months has been declining at a monthly rate of about 10 percent of the volume of paper outstanding. Due to the heavy reduction in consumer debt already effected and the dwindling of installment sales, it 18 expected by the Board that the decline in consumer debt during the remainder of the year will probably run about $200 to $250 millions per month as compared with the previously-cited average of 400 millions in recent months. Uncontrolled basic commodity prices near peak Basic commodity prices not subject to control continued to rise last week, carrying the BLS index of 9 uncontrolled commodities nearly to its May high. The rise was responsible for an advance in the index of 28 basic commodities. (See Chart 4.) Among the commodities not subject to control, wheat prices advanced to their highest levels since early May. The advance was attributed to mill buying on the strength of improved flour demand and a forecast by the Commodity Credit Corporation that 400 million bushels (about 40 percent) of this year's crop would go into the loan. Barley prices were up 7 cents during the week. Corn prices were up moderately, but flaxseed receded somewhat. Butter prices again touched their highest levels of the season. Cotton prices were dampened by private crop estimates substantially above the Government's forecast as of August 1. Prices for rosin increased 5.7 percent as the trade has been forced to purchase gum rosin (not under a price ceiling) because of re- duced stocks of wood rosin. Livestock declined noticeably. Hog prices receded under of prices expansion of market receipts indicative of en early pressure beginning an of the autumn hog movement, presumably Regraded Unclassified 220 - 5 - stimulated by prospects of livestock ceilings and of lower prices later when the record supplies are marketed. In addition, hog receipts showed the heaviest average weights on record, & development contrary to expectations. General commodity prices hold level trend The BLS all-commodity index in the week ended August 29 W&S unchanged for the third successive week at its maximum since 1926. At 98.9 it stands 31.9 percent above the pre- war level of August 1939. The levelling out of the general price level since last March 1s in sharp contrast to the steep rise in the corresponding months of the first World War. (See Chart 5, upper section.) In comparison with the above- mentioned gain of 31.9 percent since August 1939, the general price index in the comparable period of the first World War rose more than 80 percent. The index of food prices (lower section of Chart 5) also has flattened out since last March, but in August made a noticeable upturn. Cotton crop estimate sharply increased The cotton crop prospect improved nearly 1,000,000 bales during August, according to the September 1 estimate released this morning by the Department of Agriculture. The crop 1s now placed at 14,028,000 bales as compared with an estimate of 13,085,000 bales last month. The estimated average yield of 289.3 pounds per acre establishes a new high record. Meat rationing proposed; packers sued for ceiling evasion As the meat shortage became increasingly widespread last week, direct consumer rationing by the beginning of 1943 W&B recommended to the WPB by its Food Requirements Committee. The announcement of the recommendation forecast & rationing allowance of 2% pounds of meat a week. This allowance of 130 pounds on an annual basis compares with actual consumption of 142 pounds per capita in 1941, and an average consumption of 131 pounds in the 1931-1940 period. The allowance of 2% pounds D. week was contrasted by the Committee with the British allowance of slightly more than one pound; the German allowance of 12% ounces; the Dutch, 9 ounces; the Belgian, 5 ounces; and the Italian, 32 to 43 ounces a week. operation through a WPB conservation order allocating packers' In about two weeks, indirect rationing will come into supplies to civilians through regional sales quotas. Civilians are to be asked in the meantime to conserve beef, veal, pork, lamb, and mutton by use of various food substitutes. Restaurants Regraded Unclassified 221 - 6 - in New York and Washington, for example, already are cooperating by adopting meat-saving measures. More than 100 packers, including the "b1g four", were included in injunction actions begun and in temporary re- straining orders sought by the OPA on September 3 for eva- sion of price ceilings on beef and veal. The cases involved upgrading, "plain overcharging", and issuance of incorrect invoices or failure to issue invoices 8.8 provided by OPA regulations. Practically the entire wholesale meat industry will be licensed by an OPA order making the license a require- ment for selling any meat or meat product subject to price regulations. Ceilings on a specified dollars-and-cents basis for dressed pork will be established by zones within ten days according to the OPA. This system will be substituted for ceilings supposed to represent individual sellers' list prices, which the OPA reports "represented hopes rather than actual prices during the base period". This action is similar to that taken by the Canadian Wartime Prices and Trade Board for wholesale prices of beef, after price and supply difficulties had occurred under general price control. Nonagricultural employment at new high With the armed services slated to make further heavy inroads on the country's manpower, the threat of labor shortages in key industries 1s already becoming of increasing concern. As a result of a substantial contraseasonal increase in factory employment during July, and gains in all other major groups except trade, employment in nonagricultural establishments in July rose to the highest level on record. The total of 37,100,000 reported by the Department of Labor was 435,000 above the previous month, and nearly 6,500,000 above the level of July 1940. In the face of the increasing demand for workers, some key war industries have been losing men to the armed services at a rapid rate. Thus, following recent announcements of broadened draft requirements, 5 major airplane plants in southern California are reported to have lost men to the armed forces at a rate of 7,000 per month. The present labor problem is further complicated by the fact that the labor su ply 16 unevenly distributed. While some areas are experiencing acute labor shortages, the Wall Street Journal reports that New York City has 400,000 unemployed. About half of this number are said to constitute normal unemployment arising from seasonal and other factors. 222 - 7 - Scrap shortage again to the fore Despite all that has been said about the steel scrap shortage, further evidence of grave concern over the outlook has developed in steel trade circles. During the past week the chairman of the American Industries Salvage Committee asserted that there was only 2 weeks' supply of steel scrap in the hands of steel mills. In recognition of the gravity of the situation, leading Government officials have appealed to newspaper publishers to spur the public to a reinvigorated scrap salvage campaign. Due in part to the lack of scrap the steel industry was able to operate at only 94.5 percent of capacity in July. Some improvement, however, has occurred in operations during the past month. (See Chart 6.) During the current week, affected somewhat by the holiday, the rate is scheduled to decline 1.2 points to 96.4 percent of capacity, While the immediate steel scrap situation 1s causing concern, the outlook for the coming winter months, when collections will be hampered by weather conditions, is even more menacing. During the last World War, steel ingot production dropped severely in January and February 1918, with output in the former month falling 33 percent below the previous fall peak. The principal difficulty on that occasion, however, appears to have been a transportation tie-up, a repetition of which does not seem likely in view of the showing made thus far by the railroads. Regraded Unclassified NATIONAL INCOME AND ITS EQUIVALENT PURCHASING POWER 1939 1940 1941 -1942 DOLLARS DOLLARS Billions Billions Monthly 115 115 110 110 105 105 100 National Income 100 95 95 90 90 85 85 Purchasing Power of National Income ¹ * 80 80 75 75 70 70 A $ o N D J F M A M J J A S o N D J F M A M J J A S o N D J F M A M J J A SOND 1939 1940 1941 1942 223 Chart 1 * Based on cost of living index of B.L.S. Aug. 1939:100 Office of the Secretary of the Treasury Division of Research and Statisties C-415-A Regraded Unclas RETAIL SALES COMPARED TH SALARIES AND WAGES Adjusted for Seasonal 1938 1939 1940 1941 1942 1943 DOLLARS PER Billions CENT 6.0 168 5.6 156 5.2 144 Solaries and Wages 1935-39-100, Dept. of Comm. 4.8 132 4.4 120 4.0 108 Retail Sales (Billions of Dollars) Actual + 3.6 96 Projection¹ 3.2 84 2.8 1938 1939 1940 72 1941 1942 1943 . Department of Commerce refer relaif salse adjusted for 224 + Besed or average relationship to soluries and - 1935 through 1940. Chart 2 Office of the Secretary of the Treasury Dividen of Research and Statestics C-421 Regraded Unclas 225 Table 1 Sales of retail stores, by kinds of business (Billions of dollars) Percent- Kind of business 1941 1942 est. age change Drinking places 1.8 2.2 +22 Jewelry .5 .6 +20 Eating places 2.5 3.0 +20 Unclassified food stores 3.0 3.5 +17 Grocery and combination 9.4 11.0 +17 Shoes .8 .9 +13 General stores with food .8 .9 +13 Dry goods and general merchandise "O2" .9 +13 Men's and boys' clothing 1.0 1.1 +10 Hay, grain, feed, and farmer's supplies 1.0 1.1 +10 Family clothing and women's wear 2.3 2.5 + 9 Drugs 1.9 2.0 +5 Department 5.0 5.2 + 4 Hardware "o2 .8 0 Miscellaneous (including secondhand) 2.0 2.0 0 Furniture and housefurnishings 1.7 1.7 0 Variety 1.2 1.2 0 Fuel, ice, and fuel oil 1.2 1.1 -8 - Lumber and building materials 2.0 1.8 -10 Auto accessories .7 .6 -14 Filling stations 3.5 2.9 -17 Farm implements .6 .5 -17 Heating, plumbing, paint, and electrical .4 .3 -25 Household appliances and radios .7 .5 -29 New and used car dealers 7.5 1.8 -76 All retail stores 53.9 51.2 - 5 Source: U. S. Department of Commerce. Regraded Unclassified Chart 3 226 DEPARTMENT STORE SALES 1935 - '39 - 100, UNADJUSTED JAN. MAR. MAY JULY SEPT. NOV. PER PER CENT CENT Weekly 260 260 240 240 220 220 200 200 180 180 160 160 140 140 120 120 17. '42 100 100 80 80 '40 60 60 JAN. MAR. MAY JULY SEPT. NOV. Office of the Secretary of the Treasury I 1 1 1 I C - 390 MOVEMENT OF BASIC COMMODITY PRICES 1941 1942 PERCENT PERCENT August 1939-100 190 190 185 185 9 Uncontrolled Commodities 180 180 175 175 170 28 Commodities 170 165 165 160 160 19 Controlled Commoditiest 155 155 150 150 145 145 140 140 SEPT. NOV JAN. MAR. MAY JULY SEPT. NOV. 1941 1942 PERCENTAGE CHANGE DEC. 6, 1941 TO AUG. 28 AND SEPT. 4. 1942 PERCENT PERCENT 19 Controlled 9 Uncontrolled +45 Commodities +45 Commodities Hoge - +40 +40 +35 +35 Flatered 2175 +30 +30 +25 +25 - Butter 218% +20 Lord zeax +20 Steers ALBX +15 Shellee an +15 Carn NEWS Lead ILIX Barry 110% Print Cloth 7.8% +10 Sugar 6.9% +10 Rean 1951 Cottonesed a 40% Cotton 7.31 Zine ... +5 0,3 Change + 5 Mides. Sall. Tin, Pubber, Wheet in o Coffee. Copper, o St. Scrap.dom, St Screp.exp - 5 Cocoo #X . 5 Regraded Unclassified Tollow 4/3 Burlep-48x Tape-4.7% -10 . 10 Dec 6 Ang. 28 Sept. 4 Dec. 6 App. 20 Sept. 4 1941 1942 1942 1941 1942 1942 e 20 Controlled and . Uncontrolled provious to June 26 227 Office of the Secretary of the Treasury P-244-9 - of - and - Chart 4 PRICES, 1939 TO DATE COMPARED WITH 1914 TO 1918 July 1914-100 World Wor Period; Aug. 1939-100 Present Period PERCENT PERCENT All Commodities 200 200 1918 180 180 1917 160 160 140 140 1916 Wast Ended First Month 1942 Any. " 120 of War 120 1915 1940 1941 1939 100 1914 100 80 J M M J 5 N J M M J S N J M M J 80 S N J M M J $ N J M M J 5 N PERCENT PERCENT Foods 200 200 1918 180 180 1917 160 160 West Ended Aug. 29 140 140 1942 1941 First Month 120 of War 120 1916 1939 1940 100 1915 100 1914 80 J M M J $ N J M M J S N J M E J 5 H J M M J $ N J M M 80 J 5 N Seirce: B.L.S. Office of the Secretary of the Trunsery 228 - of bank et Date 222-A Regraded Unclassified Chart 5 Chart 6 229 STEEL INGOT PRODUCTION PER CENT Per Cent of Capacity '41 100 42 90 40 80 70 Amer / and.,G.,Inst 60 JAN. MAR. MAY JULY SEPT. NOV. Office of the Secretary of the Treasury Division of Research and Stabistics C-419 230 TREASURY department PROCUREMENT DIVISION OFFICE OF THE DIRECTOR WASHINGTON September 8, 1942 MEMORANDUM TO THE SECRETARY: There is submitted herewith the operating report of Lend-Lease purchases for the week ended September 5, 1942. A review is being made of stocks in ware- houses purchased for foreign governments under the Lend-Lease program in order that consideration may be given to making those materials available to domestic needs or for Lend-Lease purposes which call for prompt shipping. Director of Procurement geter Clifton' Mary PORVICTORY BUY THITED STATES TONDS $ LEND-LEASE -TREASURY DEPARTMENT, PROCUREMENT DIVISION 231 STATEMENT OF ALLOCATIONS, OBLIGATIONS (PURCHASES) AND DELIVERIES TO FOREIGN GOVERNMENTS AT U. S. PORTS AS OF SEPTEMBER 5, 1942 (In Millions of Dollars) Administrative Undistributed & Total U. K. Russia China Expenses Miscellaneous Allocations $2100.2 $1081.6 $550.1 $56.6 $3.7 $408.2 (2100.0) (1074.7) (517.6) (56.4) (3.7) (447.6) Purchase Authoriza- tions (Requisitions) $1502.8 $ 943.2 $503.8 $40.5 - $15.3 (1488.5) ( 937.2) (495.5) (40.6) - ( 15.2) Requisitions Cleared for Purchase $1463.0 $ 927.9 $481.2 $40.4 - $ 13.5 (1441.7) ( 918.3) (469.2) (40.5) - ( 13.7) Obligations (Pur- chases) $1347.6 $ 894.0 $402.1 $40.4 $2.1 $ 9.0 (1329.5) ( 885.9) (391.9) (40.4) (2.0) ( 9.3) *Deliveries to Foreign Governments at U. S. $ 560.6 $ 446.7 $ 91.1 $20.1 - $ 2.7 Ports ( 554.7) ( 442.3) ( 89.6) (20.1) - ( 2.7) # Deliveries to foreign governments at U. S. Ports do not include the tonnage that is either in storage, "in-transit" storage, or in the port area for which actual receipts have not been received from the foreign governments. Note: Figures in parentheses are those shown on report of August 29, 1942. graded Uncla 232 EXPLANATION OF DECREASES The reduction of $100,000 in Purchase Authorizations and in Requisitions Cleared for Purchase, for China, was effected by an adjustment of the estimated value of requi- sitions for that country. Regraded Unclassified 233 NOT TO BE RE-TRANSMITTED COPY NO. 13 BRITISH MOST SECRET U.S. SECRET OPTEL No. 310 Information received up to 7 A.M., 8th September, 1942. 1. NAVAL On the evening of the 7th a whale oil factory ship believed to be S.S. SOLGLIMT, 12,250 tons (ex-Norwegian) was sighted off JERSEY. Motor torpedo boats and motor gun boats were sent to attack but no reports have yet been received, aircraft have also been sent out, 2. MILITARY EGYPT. 6th. The enemy still seemed to be withdrawing in the morning, by last night the bulk of his forces had retired to the positions held prior to the battle. A triangular area 6 miles by 12 East of the mine fields is still in his hands. Our light columns have been attacking this area from 3 sides and en- countering considerable opposition. RUSSIA. Continued Russian attacks in the Northern and Central sectors have made no headway. The Germans have made little fresh progress in their attack on STALINGRAD but are approaching ASTRAKHAN from the Southwest as well as from the Northwest. The German bridgehead over the TEREK near MOZDOK has been extended Southwards but German detachments trying to infiltrate through the Western Caucasian Mountains are still being held. The German claim to have captured NOVOROSSISK though not confirmed is probably true. 3. AIR OPERATIONS WESTERN FRONT. 6th/7th. A total of 423 tons of bombs were dropped at DUISBURG, the attack was somewhat scattered but large fires were reported in the middle of the town and in the area of the docks. Intense A.A. and searchlight con- centrations were met over the objective. 7th. 29 U.S. Fortresses were sent to attack the shipyards at ROTTERDAM. Enemy fighter opposition was met and only 7 aircraft bombed the target. 12 enemy aircraft are claimed as destroyed, ten probably destroyed and 12 damaged. Fighter escort and a diversionary sweep was provided by 14 squadrons of Spitfires which probably destroyed 3 F.W. 190's. 2 Spitfires are missing, 1 pilot safe. Other fighters probably destroyed one enemy bomber and damaged two. 5 single Mosquitos bombed towns in GERMANY. Regraded Unclassified 234 - 2 - 7th/8th. 43 aircraft were sent seamining. One Wellington is missing, also one Boston from Intruder operations. 25 enemy aircraft crossed the coasts of ESSEX and SUFFOLK and made a scattered attack, one was shot down and another damaged. EGYPT. 5th/6th. TOBRUK and HERAKLION aerodrome and harbour were successfully attacked, 3 bombers are missing. 6th. Our fighters escorted bomber attacks on enemy M.T. and tanks and intercepted enemy bombing attacks. 5 enemy aircraft were shot down, 2 probably destroyed and 2 damaged. 12 of our fighters are missing, 5 pilots safe. MEDITERRANEAN. 6th. 9 Beauforts and 11 Beaufighters attacked a Southbound convoy of 4 vessels, escorted by 11 destroyers and 12 aircraft. One ship was hit with torpedo and another probably hit. The convoy was raked with cannon and machine gun fire. 2 enemy aircraft were shot down, another was probably destroyed and 6 damaged, 4 of our aircraft are missing. RUSSIA. 5th. The German Air Force estimated at approximately 1,000 aircraft, attacked Russian forces protecting STALINGRAD. In the MOSCOW sector attacks were made on Russian aerodromes. Regraded Unclassified 235 TREASURY department INTER OFFICE COMMUNICATION DATE Sept. 8, 1942 TO Secretary Morgenthau FROM Mr. Hoflich Subject: Japanese and United States Naval Vessels Sunk and Damaged. The attached tables show Japanese and United States naval vessels sunk and damaged since the beginning of the war on December 7, 1941, so far as these have been reported in U.S. Naval communiques. - 2 - 236 Table I. Japanese Naval Vessels Sunk and Damaged December 7,1941-September 5, 1942 as reported in United States Naval Communiques Combatant Ships : Aleutians : Solomons : All Areas = :Probably: = :Probably: Dam-: :Probably: Dam- :Sunk: Sunk :Damaged:Sunk: Sunk :aged :Sunk: Sunk :aged Attleships -- -- -- -- -- 1 -- -- 5 preraft carriers -- : -- -- -- 2 6 1 4 1# -- 5 -- -- 2## 11 3 19** Estroyers 6 1 2 1 1 3 24 8 la Thmarines -- -- -- -- -- -- 6 -- Manders -- -- -- -- -- -- -- 1 3 whers -- -- 1 -- -- 4 11 2 19 Total 7 1 8 1 1 12** 58 15 63** Non-combatant Ships Street tankers -- -- -- -- -- -- 10 -- 2 Transports 1 -- 4 1 -- -- 25 5 12 and supply 1 -- 2 -- -- -- 41 3 8 1 -- -- 1 -- -- 8 2 4 Total 3 -- 6 2 -- -- 84 10 26 TOTAL-ALL TYPES 10 1 14 3 1 12** 142 25 89** Possibly destroyer. One possibly a destroyer; also several additional cruisers damaged. Regraded Unclassified 237 - 3 - Table II. United States Naval Vessels Sunk and Damaged December 7, 1941 - September 5, 1942 as reported in United States Naval Communiques. Probably Sunk Sunk Damaged Battleships 1 -- 1 Aircraft carriers 1 -- 1 Cruisers 1 : 2 Destroyers 10 1 6 Submarines 2 1 -- Tenders -- 1 1 Fleet tankers 3 -- -- Transports 1 -- 1 Miscellaneous 12 6 -- Total reported 31 9 12 Regraded Unclassified 237 - 3 - Table II. United States Naval Vessels Sunk and Damaged December 7, 1941 - September 5, 1942 as reported in United States Naval Communiques. Probably Sunk Sunk Damaged Battleships 1 -- 1 Aircraft carriers 1 -- 1 Cruisers 1 -- 2 Destroyers 10 1 6 Submarines 2 1 -- Tenders -- 1 1 Fleet tankers 3 -- -- Transports 1 -- 1 Miscellaneous 12 6 -- Total reported 31 9 12 Regraded Unclassified 237-A September 9, 1942 10:38 a.m. Gen. George Marshall: Good morning, Mr. Secretary. HMJr: How are you, General? M: Fine, thank you. HMJr: General, I'll only take a minute of your time. I went to see the President today, and I said in view of the mix-up on our tax bill, and also that his message takes action from Banking and Currency, I'd feel happy if I'd stay here now. M: Yes. HMJr: And he agreed. M: Well, then you want me to cancel that reservation? HMJr: Yeah, and I was going to postpone it for a month. M: All right. Well, I .... HMJr: And may I just take a minute to say that - that all of your people have been most considerate. I've never seen such care and thought as they've put into this thing. M: Well, thank you for coming. HMJr: And - as I say, it was my own - members of my family they couldn't look after me or people around me here in the Treasury who usually look after me, they couldn't have been kinder. M: Well, thank you very much for telling me that. I - I'm .... HMJr: And - I mean, and 80 I'd like to postpone it for a month. M: All right. HMJr: Thank you. 237-B September 9, 1942 The following cable will be sent to Ambassador Winant today by the State Department: "Party referred to in Mr. Welles' letter is postponing his trip for a month." M Regraded Unclassified 238 September 9, 1942 11:21 a.m. HMJr: Hello. Operator: Go ahead. HMJr: Hello. Cong. Willis Robertson: Mr. Secretary. HMJr: In person. R: This is Willis Robertson. HMJr: How are you? R: Your letter to the Wayne Manufacturing Company pleased them very much. HMJr: Good. R: I read it to the - the - they had about four thousand present... HMJr: Yeah. R: .... and I read it, and then we had a radio hook-up and everybody through the Valley heard it. HMJr: Wonderful. R: And, my wife was at home and she heard the broadcast and she said she thought that was the best part of my speech. That I put more emphasis on that than anything I had in it, and .... HMJr: Well R: .... it really pleased them. HMJr: Well, if your wife said so, I believe you. R: (Laughs) As a matter of fact, they have sub- scribed twelve and a half per cent .... HMJr: Yeah. R: of the current payroll. 239 - 2 - HMJr: Is that right? R: Yes, sir. HMJr: Well, Virginians have always been a - my second favorite state. R: (Laughs) Well, I remember you came down to Lexington, you know .... HMJr: Yeah. R: .... in 1931, and then we met again when Governor Roosevelt spoke at the McIntyre Amphi - Open Theatre over there at Charlottesville, you know? HMJr: Sho. We conservation commissioners have to stick together. R: Absolutely. HMJr: Is that right? R: Yes, sir. Now, on this income tax, my personal preference - I don't think that five per cent's too heavy, but I'd rather it would be a part of the income tax, rather than what they call the - super five per cent gross income, and give some - I wouldn't give a nickel of that back. HMJr: Well, that again is my second choice - is to have an income tax, but that isn't going to discourage people from spending. R: No, no, I know we - we've got to reach everybody in this effort. HMJr: Yeah, but you got - you got to make it an induce- ment to save and a penalty to spend. R: Yeah. HMJr: And just increasing the income tax ien't going to do it, in my humble opinion. R: No, I don't think 80 either. HMJr: See? R: Now, we're putting the pressure on the bonds, and .... Regraded Unclassified 240 - 3 - HMJr: Yeah. Well, that all helps, and that's .... R: I'm going to send you a copy of the Waynesboro paper that carried the Governor's address, and HMJr: Good. R: .... my remarks over there. HMJr: But we've still got that twenty-billion dollar gap, you know, kinda rattling around in its bones. R: I - I've - I've been saying that its thirty billion. HMJr: Well, I .... R: Roy Blough testified, I think, before the Senate Committee, I thought in one paper .... HMJr: Yeah. R: .... that by next spring .... HMJr: Yeah. R: .... it would be at the rate of thirty billion. HMJr: Well, I'll split the difference with you. R: (Laughs) HMJr: But it's still there, it's got .... R: No, I'm up against a little problem to meet my engagement to speak with Greer Garson in Winchester tonight. HMJr: Yeah. R: We've got this soldiers' vote business. HMJr: Yeah. R: I - - I can't possibly hope to get away by one o'clock, that's when the bus is supposed to leave that will get me there in time. HMJr: Well .... R: The other bus doesn't get to Winchester until 7:35, Regraded Unclassified 241 - 4 - and is frequently late. HMJr: Yeah. R: The dinner starts at 7:30, and they're going to have one or two five-minute speeches at the dinner. At 8:30 they expect to have fifteen hundred or two school. thousand people in the big auditorium of the Hanley HMJr: Yeah. R: I was wondering if you had somebody who could speak about five minutes at the dinner and take me to Winchester so that we both can get there on time, and then he could come back to Washington tonight - it's only seventy miles. I haven't got a car here. The only way I can get there, they said they - nobody there could come down for me and if my bus is late, 1 just couldn't make the appointment. HMJr: Well, now let me just - what is - what is your problem, Congressman? R: My problem is to get from here to Winchester in time for a 7:30 dinner with Greer Garson, and .... HMJr: Yeah. What time .... R: .... a five hundred thousand dollar bond program. HMJr: What time would you want - would you be ready to leave? R: I would be ready to leave at 4:30 or 5:00. HMJr: Yeah. R: In a private car we could leave at five o'clock and get there. See we wouldn't have to make any stops. I would prefer to leave at 4:30. HMJr: Yeah. R: And I'd like for whoever goes with me to personally represent you and say that he came from you .... HMJr: Yeah. R: to thank them for what they've already done and tell them that the most that they can de isn't Regraded Unclassified 242 - 5 - too much. HMJr: Well, now just - will you hold the wire one minute? (Talks aside) R: Yes, sir. HMJr: Well, Congressman, I'll look around and if there's anyway of our doing it, we'll call you back within the next half hour. R: All right, sir. HMJr: But, since all these regulations have gone in, we've never done anything like that. I'd love to do it for you, but I'll - I'll look around and see. R: Well, it - you see the - to - to keep within your regulations, I'd want the man to go - - to go to make a speech for you.... HMJr: I see. R: .... at the banquet. HMJr: I see. R: Now, they want me to speak at the banquet and speak again at the Rally. HMJr: oh, yes. R: That's too much, and it would be more effective if they can have a message, and that gete in the paper too, don't you see? HMJr: I see. R: And, when you call me, I can catch the three o'clock edition of the Winchester paper and have this man's name in there - that you have taken notice of this meeting and are sending a speaker to this banquet. HMJr: I see. Well .... R: And incidentally, you get me there. HMJr: I - - I .... If - if there's any way that we can 243 - 6 - work it out, we'll let you know between now and twelve o'clock. R: Thank you, very much, sir. HMJr: I'll try my best. R: All right, sir. Appreciate it. Good-bye. Z43A A September 9, 1942 Present: Mr. Bell Mr. White HM Jr: Sir Frederick Phillips called on me to talk about the currency which British and U.S. Armies are going to use. He wanted to know what kind we were going to use. I told him. Then he said, "I had a call from General Carter, and the question is coming up of what kind of an exchange rate there should be." So I told Sir Frederick quite frankly of our meeting here last Friday just for his guidance and cautioned him to keep it confidential. It told him that if the Army wanted me to do anything further about it they would have to ask me. So he said, "Well, supposing we go into France - what is the exchange rate going to be?" Then he went on to say, "The Free French may say we pay-too much or we pay too little, and the whole question of post-war is involved in this. I told him, "Well, the Army is going to run this and you will have to ask them." I told him that I would appreciate his keeping me informed and he said he would. I asked him how it was going to be in England and he said, "Well, the Army doesn't want to run it there." Bell: General Carter came to see me this afternoon on the same subject, and he said, first, they would have to have more than the $20,000,000 in currency, and that General Eisenhower had telegraphed for $12,000,000 more to be shipped at once for his use, and the British wanted 8. million of our currency. I asked him if the million was to be on Lend-Lease and he said, "No, it probably will be a credit." Then he told me that he had the whole problem of occupation in his lap, and he wanted the Treasury's help on it. I told the General of the Secretary's conference last Friday which Under Secretary Patterson attended, and at which time the Secretary told Patterson that he would take no further initiative in this matter unless asked to do 80 by Patterson. 243B - 2 - After some further discussion of the whole problem we agreed that General Carter should go back and talk to Patterson about the matter, and if he wanted the Treasury in on it that he should call the Secretary. Carter said that the Board of Economic Warfare had been pushing this matter for the past few days, and he had scheduled & conference with them tomorrow. He said that he would advise me as to that conference and also on his talk with Patterson. Carter also said that Phillips had called him and asked him to come to see him on this matter, and he said he had seen Phillips yesterday and discussed the matter. However, there apparently wasn't much discussion of the problem between him and Phillips except in a very general way. HM Jr: He did see Phillips? Phillips let me under- stand that he hadn't seen Carter yet. Bell: Yes, he saw him yesterday. He had already seen him when I talked to Carter today. HM Jr: Did General Carter give Mr. Bell any idea as to what country they were going to use this currency in? Bell: No, he said that this might be used in France and it might be used in places like Northern Africa. He did say that the problem was urgent and that the time limit, in his opinion, was less than two weeks. Carter told me that General Eisenhower has been pressing them for an answer. It's apparent that they're not together in the War Department. White: They don't ever get together. Bell: Carter didn't know about the conference which you (HM Jr) had here last Friday. He did know about the confer- ence which was held in Hull's office. He said, "I am afraid that Patterson feels that this initial step of printing this currency solves the problem for the moment, but, in our opinion, it is just the beginning." He also knows about the school down Regraded Unclassified 243C - 3 - at Charlottesville, and he has talked to the officers in charge down there. He is quite satisfied that they are not in any way qualified to pass on the details of this whole problem. He says that it has to be worked out here in Washington amongst the departments concerned in broad general principles. HM Jr: I really don't see where Milo Perkins has a thing to do with it. White: I can tell you how they got into it. Somebody over there got the idea that it would be an excellent thing for the Board if they got. in on this school and sent lecturers, etc., down there, and they also interpreted it as economic warfare. Somebody got busy and got in touch with the authorities there, and I think convinced them it would be excellent for the Board to collaborate with them and prepare papers, etc., on operations in the field of occupation, and since then they have been pretty close. I think what Dan says seems to check a little more closely with the word I got from Bewley which I passed on to you. In this letter, Bewley said that the matter was urgent. - I mean that the British thought the matter was urgent. Bell: Carter thinks the British ought to be brought in on it pretty soon. I think what he would like is for the Treasury to take the initiative, and call a conference on it. HM Jr: Did the girl give you Friday's meeting? Bell: Yes, I read the minutes of that meeting on Friday. HM Jr: Well, that didn't leave any doubts in your mind as to where I stood, did it? Bell: No, and Carter agreed that he should go to see Patterson, and then if Patterson wants you to go ahead he will call you. HM Jr: Well, let it go. There are two things I don't understand. One is how Mr. Stimson can take off the whole month of September after Regraded Unclassified 243D - 4 - having had two weeks off in August, and the other is how Eccles can be away for two months. White: Also how Patterson thinks it isn't urgent and his own General Staff thinks it is. HM Jr: Well, Patterson says that you can lock it up for a couple of months. Bell: I think $12,000,000 will be leaving the shores within 12 hours in planes. White: There's another thing. We brought up at the meeting the question of coins. That is very important. Bell: They raised that, too. We are providing some coins along with this shipment. HM Jr: How much? Bell: I don't know exactly - something like two or three million, but I would have to check that. ####### Regraded Unclassified 244 September 9, 1942 MEMORANDUM FOR THE SECRETARY From: Mr. Blough Subject: Luncheon conference on the Tax Bill and 1942. compulsory savings, Wednesday, September 9, Secretary Morgenthau held a luncheon conference Wednesday, September 9, from 1:00 to 2:20 p.m. Present, in addition to the Secretary, were Senators George, Barkley and Brown, Chairman Doughton, and Messrs. Gaston, Paul and Blough. Senator Barkley arrived a little late and the previous discussion was summarized for him. Secretary Morgenthau said that there were some things he wanted to talk over with them that he would not say to the full Committee. He said he could see his way clear to financing the war through 1942 but that he was worried about 1943. He said he had talked with the President this morning and had told the President that he thought his message to Congress was a good message and dealt with the problem of the increasing gap between consumer purchasing power and available goods, but that he had not dealt with the gap which would remain despite such action. He said he told the President that there was nothing in the message which helped the Treasury with the Tax Bill, He said the President had told him he was right, that he had not met the problem of the existing gap, and that he felt the Treasury's plan was too new and unknown to the people. The Secretary then explained how the proposed spendings tax would operate, not only to withdraw purchasing power but to serve as an induce- ment to reduced spending. The Secretary said that his decision to ask for & plan calling for the return of the tax after the war was made only after a very great deal of thought and con- sultation. He said he felt the voluntary plan was a Regraded Unclassified 245 - 2 - democratic way and that he had hoped that it would be sufficient, but that the revenue had not come in with sufficient rapidity to meet the growing needs. The Secretary said that the Senate Finance Committee had turned down the Treasury's plan, that theTreasury had received no votes for its plan, and that accordingly he wanted to talk about what should be done next. Senator George indicated that the fact that there had been no votes for the Treasury plan did not mean that none of the senators favored that plan. Only twelve senators voted for the motion to turn down the plan in principle. He said that he felt the plan needed very careful thought because it would largely destroy the luxury spending of people in the United States and that would have very serious repercussions on the economy. Secretary Morgenthau indicated that he understood that such would be the result but he thought that just as in England, Bo here, the people engaged in producing these luxuries should be in war work. Senator George agreed but said he thought it would be better for them to be taken for war work by the Government than to have their business destroyed through some over-all plan such as the Treasury had recommended. As to the compulsory saving, Senator George indi- cated that he favored it and that he thought something might be put in this bill. He asked Chairman Doughton whether, if the Senate did put the plan in the bill, the House conferees would view it favorably. Chairman Doughton, while indicating that the House conferees would of course view seriously anything sent over by the Senate Finance Committee and the Senate, expressed the view that on a matter of this importance the Ways and Means Committee would, following its usual practice, feel that public hearings should be held. Senator Barkley discussed the fact that the public had discussed before both the Ways and Means and the Senate Committees the problem of compulsory savings and indi- cated that perhaps the House would consider this suffi- cient hearing. Chairman Doughton made no commitment on this point but still seemed to retain the idea that 8. matter of this importance should be subject to public hearings. Regraded Unclassified 246 - 3 - Chairman Doughton also indicated that he did not believe in levying taxes and then paying them back, that this increased the financing problem of the Treasury after the war. Senator George, Senator Barkley and Mr. Gaston, and also to a lesser extent, Senator Brown and Mr. Paul, indicated that the compulsory saving would be in lieu of other loans. The Secretary indicated that he felt that there would have to be compulsory saving, that voluntary lending would not be sufficient. Senator Barkley indicated that much of the borrowing of the Treasury would probably have to be of a semi-forced character in the case of banks and other financial institutions and that the compulsory savings for indi- viduals would, in his opinion, be no more forced and no more undesirable than such borrowing from banks and financial institutions. Chairman Doughton said that he did not understand about the inflationary gap and its effect on prices since the price control law was supposed to take care of the price problem. Mr. Paul, Mr. Gaston and others explained how the pressure of purchasing power threatened to blow up the price ceilings if it were not reduced by some method of preventing people from spending their money. The Secretary asked whether it would not be possible to have a small joint Committee set up to consider the inflationary gap problem along with compulsory savings. Senator George stated that the Senate Finance Committee had this morning passed a motion calling for the setting up of a joint Senate and House Committee, with the Secretary of the Treasury as a member. This Committee would have the responsibility of studying compulsory savings plans and reporting January 11, 1943. Secretary Morgenthau expressed his pleasure that such a Committee was in prospect but indicated that he would like to have it report by December 1, 1942. Senator George indicated that however late the tax bill might be passed, he thought the Committee would have time to study the matter and report by December 1. Chairman Doughton indicated his approval of the Committee. In response to a question of the Secretary, Senator George and Mr. Paul indicated that in their opinion the wording of the motion passed by the Senate would be broad enough to cover other aspects of the inflationary gap problem in addition to compulsory savings. Senator George indicated that the motion could be changed if the Treasury desired revision and the Secretary asked to see a copy of the motion. 247 - 4 - Senator Barkley indicated that in his opinion the tax bill should not be delayed until after election, that this would be interpreted by commentators and others as a sign of weakness on the part of Congress. Senator George said he did not mean to indicate that the bill would be delayed until after election but that he felt that if the Senate desired to put a compulsory saving provision in the bill to take to conference, there would be considerable time to study the matter before the conferees finished their work. Mr. Doughton indicated some irritation, although he did not frame it as a criticism, that the Treasury had not dealt with Mr. Stam in working out its spendings tax proposal. Mr. Paul indicated that as soon as copies of the preliminary plan were ready, they had been sub- mitted to Mr. Stam with the approval of Senator George. Chairman Doughton made a closing statement in which he took a somewhat more conciliatory attitude but did not indicate any basic change in his views on the subject. RB 248 September 9, 1942 Shown to President this a.m. and report is in the President's folder. Regraded Unclassified 249 September 9. 1948 - FOR the SEGRETARY Premi Mr. Paul Subject: Action of the Senate Finance Committee ⑉ Puesday, September s, 1942. 1. Conster Byrd's motion to reject the entire proposul for a spendings tax was shopted by 6 vote of . e. A few of the senstore present refreised tree voting. Benater La Follotte's notion to adopt the Treasury spendings tax without levering exemptions below the Senate Committee lovels of 1500, 01,200, and 0300, was rejected. a. donster Densher's notion for a 10 par- cest retail to be used for the purchase of non- negotiable use bonds was rejected. Senator Cuffey's notion to adopt a retail sales tax at s $ persent rate without exemptions for feed was rejected by a vote of 13 - 6. in agentment by Beneter taft that feet be orsept from the miss tax máð been proviously rejected by a the vote of 9 - 9. 3. "Vistory" a metion of Senator Goorge, 13 e 6, 8 futobouy" tax of 5 persont - all gross incomes is excess of 0624 (without my defections ordinarily allowed under the issues non). the 9as 10 to be collected at were. & post-war credit of papt of the tax would be provided, against which a tax credit would be allowed currently for payments of life incurance, cobro, and purchase of war beads within limits. this would have the effect of reducing the $ porsent 9as to a not of 8-1/8 90 3-3/4 Mr. the estimated that the tex would produce 3.6 t billion green and 48.5 billion not after allowing for the refundable post-war credit. AO the beginning of the afterness seceion the Treasury, at the requist of the Chairesa, commented briefly ea the victery the be the offect that (2) the exemptions were below the statum subsistenes lovel for families, (2) it vould be proference to integrate the proposed victory tos on a not basis with the income tax instead of adding a nov defective and would redult in at least tea million refunds gross income saw and (3) that the post-ver credit who each year. Before the WAST was instructed Be bring in on seveing various alternative not basis with mothods the of calve tax tax coons to have been ea a finally rejected Food the the question today will be whether to increase sates upon not income on a low exemption basic or - - so donster George's gross income tax. RB:dad 9/9/42 Regraded Unclassified 250 September 9, 1942 3:48 p.m. Operator: Congressman Robertson. HMJr: Hello. Hello. Cong. Willis Robertson: Yes, Mr. Secretary. HMJr: I understand that there is a misunderstanding about your request to me about sending you down there. I - I thought that I'd said that if you didn't hear from me in a half hour, it would mean I couldn't do it. R: Well, I didn't understand it. I thought - I thought that you said, "You'll hear from me in a half an hour .... HMJr: Well .... R: .... if I can't do it". HMJr: I - I checked - well, it's very possible that I was wrong and possibly you could misunderstand me. In any case, I wanted to offer you my apology. R: Well, that was all right, sir. HMJr: But I looked around, and - and we couldn't find anybody to speak at this short notice. It's for today, isn't it? R: For today, yes. HMJr: Yeah. And we - I just had nobody I could send down. R: Yes. HMJr: And I wanted to let you know how sorry I was. R: Well, I appreciate your calling me, because .... HMJr: Because, it's - it's .... R: I just called you on an off chance. I knew that there would be - and they can't prepare speeches in two or three minutes. Regraded Unclassified 251 - 2 - HMJr: No. Well, there was nobody that I could send. We don't have a speakers' bureau here .... R: Yeah. HMJr: .... and we - we rely on each State Administrator to take care of those matters. R: Yes. HMJr: And if there's anybody - I - - he could have had my own car, if that had helped any. R: Well, I wouldn't want that. HMJr: But, as - we just didn't have the - anything, and I wanted you to know, because after all, we've been friends for years, and you'd be the last person I'd want to slight. R: Well, I appreciate that. Well, we'll try to sell the bonds for you. HMJr: Well, I - - I hope you understand. R: Oh, yes, and I'll get there. I'll be a little late. I can get this five o'clook bus. I'll be - I'll be about a half an hour late, but I can get there before the dinner's over, and time enough for the big Rally that starts at 8:30. HMJr: Well, I - you - you're a good sport, and I appreciate it. R: (Laughs) Well, thank you, sir. HMJr: All right. Good-bye. R: Thank you. 252 September 9, 1942 4:00 p.m. HMJr: Hello. Norman Thompson: Yes, sir. HMJr: Norman, will you get in touch with the Cadillac Company .... T: Yes, sir. HMJr: .... and tell them that we appreciate very wery much their having rented this car to us .... T: Yes, sir. HMJr: .... but on account of trying to save gas and tires, we now would like to return it to them. T: All right, I'll do that. I was sorry that there's no legal way to work that. HMJr: That's all right. You return it and then the - the license plate on that could be put on the Buick. T: I see. HMJr: See? T: I'll do that, yes sir. HMJr: Right. T: All right, sir. HMJr: Thank you. 253 September 9, 1942 4:17 p.m. HMJr: Harold. Harold Graves: Yes, sir. HMJr: I wonder if you've got a fellow with a little extra pep and energy who could take this poster "Let's All Fight" .... G: Yes. HMJr: .... and I'd like to put it up over the door of the executive office to the White House to begin with, see? G: Yes. HMJr: Just the way it is over mine, and you'd have to get Forster's permission. G: Yeah. HMJr: And then put it over all the doors and all - over - in the entrances to all the buildings here in Washington. G: You mean all the public buildings. HMJr: All the public buildings. G: Well, we can at least try. HMJr: Try it. Starting with Forster. Tell him we'd like it to set an example. If we can do it over his, we can do it over anyone's. G: We'll try it. I suspect .... HMJr: Hello. G: Hello. HMJr: And then I'd like to have it - we've had this "bomber" one on the mail trucks now for about a month. G: Yes. HMJr: I'd like this one to go on the mail trucks. 254 - 2 - G: I'm not sure where we are with respect to size on this .... HMJr: It looks like the right size to me. G: Well, I'll - I'll certainly look into that. HMJr: Would you and give me a little written report? G: Yes, I will. Yes, sir. HMJr: How are you coming on the other proposal? G: Well, we have sent out we are sending out wires to all of our issuing agents today and to all the Fed's, and I have spent a good deal of time looking into the War Department and Navy Department situa- tion, and also the Treasury. HMJr: Yeah. G: I checked with Mrs. Forbush as you suggested about complaints, and you'd be surprised at the very small number of complaints that have actually come in here about this matter. It's not .... HMJr: Couldn't she dig up a hundred? G: No - no. She couldn't dig up twenty. HMJr: (Laughs) G: And .... HMJr: Well, anyway, I'll - I'll write you eighty. G: (Laughs) Yeah. All right. Well, we're working on that, and we'll .... HMJr: Okay. I'm - I'm just as serious as I was this morning. G: Yes. Well, I know, and we'll be ready to talk. to you Friday about it. HMJr: Okay. G: Yes, sir. HMJr: Good-bye. 255 September 9, 1942 4:30 p.m. HMJr: Hello. Operator; Mr. Mack. HMJr: Hello. Clifton Mack: Hello. HMJr: Cliff. M: Yes, sir. HMJr: In your letter to me on those hundred trucks that you wanted seized and were scheduled originally for Manila .... M: Yes, sir. HMJr: You failed to say for whom they are. M: They are for the British Purchasing Commission - New Zealand. HMJr: New Zealand. That's all I wanted to know. M: Yes, sir. HMJr: Okay. M: Yes, sir. 256 September 9, 1942 4:56 p.m. HMJr: Hello. Operator: All right? HMJr: Go ahead. Operator: Go ahead. HMJr: Hello. Ronald Ransom: Henry, Ronald Ransom. HMJr: How are you? R: Fine. How are you? HMJr: Alive - kicking. R: That's good. HMJr: Yeah. R: We are discussing this afternoon the general idea of the further reduction of two per cent in the central reserve - city reserve requirements. HMJr: Yeah. R: The question of "timing" .... HMJr: Yeah. R: I can put you on the loud-speaker if you don't object. The Board members are here in the Conference Room. HMJr: Anybody besides the Board members? R: Nobody except our economists, Mr. Goldenweiser and Mr. Thomas, and Mr. Smeed, who handles the bank examinations. Is that satisfactory? HMJr: Yeah. What's the janitor doing? R: The janitor's off on a vacation. It's his annual-leave period. HMJr: (Laughs) I see. 257 - 2 - R: It takes us almost as many people for us to reach a decision as it does for you. HMJr: I see. R: Can I put you on , HMJr: That's known as "touche". R: That's touche. All right. HMJr: All right. R: Just one second. HMJr: All right. R: The question 1s one of timing as to whether it should be done effective or not tomorrow morning which is the time your own financing is to be announced, or whether it should be deferred until - oh say - ten days or 80 later, or effective per- haps on the 14th which would hit your - your bill announcement, you see. Now apparently the reserve position in New York would indicate that we would have to do a considerable amount in the open market between now and the 21st, and perhaps let you sell us some special certificates also in the meantime, or do something on this reserve situation. In other words, we do one or the other the first part of the month and perhaps we do the other the latter part of the month, 80 that it gets around to a question of your own feeling. HMJr: What would you do if you didn't do it tomorrow? R: Well, if we didn't do it tomorrow, that is announce it tomorrow, we could announce it on the 14th, effective, say - on some later date next week - 17th or 18th - - that 18 only a suggestion. HMJr: Well, Bell 1s sitting here, and he liked what you say .... R: Yeah. HMJr: .... and I'm supposed - - I don't, and I tell you why. R: All right. 258 - 3 - HMJr: I think it's a sign of weakness to announce it on the day of the financing. R: Yeah. HMJr: I mean it looks as though we were kind of scared. R: Yeah. That's a possibility. We'd be - discuss that too, as a real - a real possibility. HMJr: Well, my ourb-stone opinion, Ronald is - I'd rather see you do it on the 14th. R: That is announce it on the 14th, effective later that week. HMJr: Yeah, that's all right. Just I - I wouldn't want to 800 it announced tomorrow. I think it's too close. It's during the financing, and it looks as though we were worried. R: Yean, and there's one other thing to be considered if we were worried as a result of the financing which we don't anticipate we will be, if we then announce it on the 14th, it would be admitting a failure, 80 in the meantime, we - we'll have to do whatever's necessary to keep the Thursday-Friday period, and Saturday period, from giving anybody any trouble. HMJr: Well, don't - I don't mean to be rude, but with all respects aboard, I think you kind of should have thought of that a little earlier. R: Well, we have thought of it anyhow. HMJr: Yeah. R: We didn't just .... HMJr: I mean, it's a little bit late. It's five o'clock at night, and to think about the job that I would expect you people to do Thursday and Friday, if necessary. R: Yes. Well, we will. HMJr: I mean - I - I - - I'm not - I'm just - I'm being very frank, as usual, but my own - my own hunch 18 - I - I wouldn't - just hold the wire one second, will you? Would you mind holding the wire one minute? 259 - 4 - R: Okay. HMJr: (Talks aside) Helle. R: Yes. HMJr: I - I - my own hunch is, and I've got to go on that, my instinct tells me that I - I think it would morning. be a mistake to announce it tomorrow R: Yes. You'd .... HMJr: I .... R: .... you'd prefer it definitely the 14th? HMJr: Yes, sir. R: Okay. HMJr: And - I'm looking to you to do the good job that you always do. R: Thanks. Okay. HMJr: Thank you. 260 September 9, 1942 5:05 p.m. Allan Sproul: Hello. Sproul. HMJr: Hello. S: What did you say? HMJr: How are you? S: All right. HMJr: I've just done something that if you think I've made a mistake, I can still turn a somersault .... S: (Laughs) HMJr: .... but - the Federal Reserve Board, through Ronald Ransom, just called me up, and they're all in session, and they wanted to know if I thought it would be all right to announce tomorrow morning that they were going to reduce reserve requirements by two per cent .... 8: Yeah. HMJr: .... and I told them I thought it was a great mistake on the morning of the financing. S: Yeah. HMJr: And that it was a sign of weakness. S: I wouldn't turn a somersault on that. HMJr: You wouldn't? S: No, I think they ought to announce it the 14th, after this financing 18 out of the way, but before the payment date. HMJr: That's what I told them - the 14th. 8: I think that's when they ought to do it. HMJr: I told them the 14th. S: Well, I think that you should stay right where you are then. HMJr: Well, I felt kind of annoyed, in a mild way, that 261 - 2 - at five o'clook at night on the eve of financing, they're getting cold feet that they may have to do a Job tomorrow. 8: Well, I don't think that that's necessary to insure the success of this financing, and 80 I think that they'd better announce it after the financing, but before the payment date. HMJr: Have you any have you - how are - what's the temperature of your feet? S: My feet are warm. HMJr: Good. How's your heart? S: My heart 1s steady and strong. HMJr: Good. Now I'm going to give you some news that you're going to like, and I haven't told this yet to the Board, because when I talked to them, they had everybody but the janitor in there. S: (Laughs) HMJr: But this is for you only, and I'd - I'd like you to keep it a secret until Saturday. 8: All right. It's - that's done. HMJr: And I'll tell Ransom tomorrow. 8: Yeah. HMJr: This 18 what the bills are going. - this new tax bill 18 going to be. You got a pencil? S: Yeah. HMJr: Five - eight - nine - ten - eleven - eleven. 8: What does that .... HMJr: 108. S: That sounds good to me. HMJr: You like that? 8: Yes, I do. 262 - 3 - HMJr: Good. 8: I think that's fine. HMJr: Well, I just - - it - that's between what Szymozak wanted and the original request from the Board. S: I think that's fine. HMJr: Well, I thought if we were going to do it, it might as well make it taste good. S: That's the way I look at it. So long as you can do it without dynamiting your other market, and I think that we can take care of that. HMJr: Well, it's five - eight - nine - ten - eleven - eleven. 8: That sounds fine to me. I'll - I'll sleep better tonight. HMJr: Well, I - I want you to sleep better, and especially in view of the fact that the Federal Reserve Board seems to have cold feet. S: Well, I - HMJr: If there wasn't a shortage of rubber, I'd send them over a hot water bag. S: (Laughs) Well, send them a hot brick. HMJr: Well, it might - it might burn them - they might burn themselves. S: (Laughs) HMJr: All right. S: Thank you. HMJr: Good-bye. 8: 'Bye. 263 September 9, 1942 5:08 p.m. Ronald Ransom: Hello. HMJr: Yeah. Operator: Go ahead. R: Hello. HMJr: Hello, Ronald. R: I just want to - nobody's on the line - I'm in my own office, just you and me, and I just want to thank you for saving my life, which you did. I'm just exactly one hundred per cent in agreement with you. HMJr: Wonderful. R: It took exactly what you said to get the result I wanted, 80 I would be very remise if I didn't express appreciation. HMJr: Well, now - well, that's very nice of you. I was - I was going to say, "I'd be damned", but I didn't. But .... R: No, this mechanism of government is hard to operate as you well know, and it .... HMJr: You seem to be having troubles over there. R: Oh, God! My .... HMJr: What? R: This 18 always a bad month for me, but this particular matter I - we will now approach upon a different, and I think much saner angle. And unquestionably, your - I had already said exactly what you said, 80 we were just exactly one hundred per cent in accord. HMJr: Well, I'm glad. I called up Sproul, and I said if I'm wrong, I can still turn a somersault .... R: Yeah. HMJr: and he said, "Don't you turn any somersaults". Regraded Unclassified 264 - 2 - R: Yeah. We - we had - I had talked to Sproul at length, and Sproul and you and I had said the same thing exactly, but .... HMJr: Well, who over there needs a hot water bottle? I'd like to send them one - to warm up his feet. R: (Laughs) Well, the trouble with it 1s that you can't tell whether they need a hot water bottle or an ice pack. HMJr: I see. R: Yeah. That's the real difficulty, but neverthe- less, the mechanism front moves along, I think that's all right, and we will - - I - I think the 14th 18 - I want to talk to Allan again at length before the final decision on that is reached, but that looks all right. HMJr: Well, that's what he wanted - was the 14th. R: Yes, and in the meantime, why whatever's necessary will have to be done. HMJr: Yes. R: All right, next .... HMJr: Now wait a minute wait a minute. This 18 for you and the Board members only - in secrecy until Saturday. R: Yes. HMJr: This 18 what we are going to do on these tax notes. R: Yes. HMJr: Got a pencil? R: Yeah. HMJr: But for you and the Board members only. R: Yes. HMJr: Five - eight - - nine - ten - eleven - eleven. Regraded Unclassified 265 - 3 - R: That looks pretty good. HMJr: 108. R: Five - eight - nine - ten - eleven - eleven. HMJr: Yeah. R: 108. HMJr: Yeah. R: Thanks. HMJr: Thank you. R: Okay. 266 September 9, 1942 5:11 p.m. HMJr: Helle. Yeah. Go on. Operater: Ge ahead. Cong. Cooper: Helle. HMJr: Jerry. C: oh, Henry, how are you? HMJr: Where were you, we had... C: Well, I just want to tell you how much I appreciate your invitation, and I was just so serry I couldn't get dewn there, but I get tied up on this Bill up here. We had three rell calls. HMJr: Well, we had mint juleps and everything. C: Oh my, I knew you'd de it up right... HMJr: Yeah. C: ...and I'm just serry as I could be, Henry, but I just couldn't help it. There were three roll calls, and I just felt like I had to be here to vote on that. HMJr: Well new, if you... C: I asked Bob to tell you about it... HMJr: He did. C: ...and I was just 80 sorry. HMJr: I'd like to take a minute and a half and tell you what I had on my mind. C: All right. I'll be delighted, or come by to see you, anyway you want at any time. HMJr: Well, you get up a little late in the morning, don't you? C: Oh well, I usually get up about seven o'clock. 267 - 2 - HMJr: The hell you do. Don't you kid me, Mister. C: Yeah, seven, sometimes .... HMJr: Yeah, I once called you at eight, and you - well, anyway. C: Oh, yes, well .... HMJr: You tell your constituency that. C: Well, all right. HMJr: Uh - is ten o'clock too late for you in the morning? C: No. That would be fine. HMJr: What? C: That'll be fine. HMJr: Do you want to drop by tomorrow morning? C: Ten o'clock? HMJr: Yeah. C: Yeah, I'll be glad to, Henry. HMJr: Okay. C: All right. HMJr: And I'll always tell your constituency that you get up at 6:30. C: Oh, I know you'll clarify me. HMJr: Okay. C: All right. (Laughs) Thank you. I'll be over at ten in the morning. HMJr: Thank you. C: Thank you. Good-bye. 268 September 9, 1942 5:29 p. m. HMJr: that we're going to be out of nickels inside of a week. Ferdinand Kuhn: Yeah. HMJr: No pennies. I wish you'd be thinking of it and give me a little memo, something to - a little radio campaign that we could hook on to the War Bonds stuff. K: Well, we've got the stuff all written, but it was turned down. HMJr: Well, this is just for nickels and pennies. K: Well, you remember this was a campaign to get the nickels and pennies out of the jars... HMJr: Yeah. K: ...out of the big kitty banks, and 80 on HMJr: You got it? K: Yeah. HMJr: Well dust it off, and show it to me tomorrow. K: You bet. All right, I'll do that. HMJr: All right. K: I'm sorry I can't come tonight. HMJr: Well, we'll have you some other time. K: I appreciate the invitation. HMJr: 0. K. K: O. K. September 9, 1942 269 Mrs. Klotz phoned Miss Thompson today and old her that there was nothing the becretary could do about this. The clipping book was returned to Miss Thompson by a Secret Service Agent today. Regraded Unclassified 270 THE WHITE HOUSE WASHINGTON September 8, 1942 Dear Henry: Captain James Gorman and two members of the show came to see me about this show. They tell me that the Army Artillery Chief 18 willing to let them accept offers for production in different places, but the Major General who might soon be on the march, 1s opposed. They now have an offer for Broadway. They have sold a great many bonds through the show thus far, and feel they are good enough to sell many more. They have worked hard and if they could get a request from you, if you think they are worth while, that they be allowed to accept the offer for Broadway, as well as in other places, they think they can turn in a good many bond sales. I am only sending this over to you because they asked me to do 80. This 18 their only scrap book, and I have promised to return it to them by registered mail. Affectionately, There Roseach 270 THE WHITE HOUSE WASHINGTON September 8, 1942 Dear Henry: Captain James Gorman and two members of the show came to see me about this show. They tell me that the Army Artillery Chief 16 willing to let them accept offers for production in different places, but the Major General who might soon be on the march, is opposed. They now have an offer for Broadway. They have sold a great many bonds through the show thus far, and feel they are good enough to sell many more. They have worked hard and if they could get a request from you, if you think they are worth while, that they be allowed to accept the offer for Broadway, as well 8.8 in other places, they think they can turn in a good many bond sales. I Am only sending this over to you because they asked me to do 80. This 18 their only scrap book, and I have promised to return it to them by registered mail. Affectionately, There Roseacta 270-A TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE Sept. 9, 1942 TO THE SECRETARY FROM TED R. GAMBLE Re: MOTION PICTURE INDUSTRY SEPTEMBER DRIVE War Activities Committee reports sales for the first few days of $51,395,250. A substantial part of this figure represents the industry's purchase of F and G Securities. For example, Paramount Pictures, Inc., partner associates, and their subsidiaries, report purchase of $26,014,838 included in the above figure. In addition, you have received telegrams from 1500 individual theatres reporting sales totalling $11,011,353. This latter figure is not included in the $51,395,250. There is no question but what this drive has been effectively extended down to every community in America, and I am convinced personally that the sales of yesterday and today directly reflect the efforts put forth by all branches of the industry. CONFIDENTIAL 270-B UNITED STATES SAVINGS BONDS - SERIES X Comparison of September sales to date with sales during the same number of business days in August and July 1942 (At issue price in thousands of dollars) : September I Cumulative salesby business days Date : daily I : I September August July : September as : sales # 1 : :percent of Augusta September 1942 1 $ 11,634 $ 11,634 $ 14,044 $ 15,821 82.8% 2 14,748 26,381 36,222 30,701 72.8 3 18,305 44,687 50,797 47,523 88.0 4 17,804 62,491 63,785 77,320 98.0 5 19,166 81,657 86,789 95,044 94.1 8 49,400 131,057 111,748 116,643 117.3 Office of the Secretary of the Treasury, September 9. 1942. Division of Research and Statistics. Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. Regraded Unclassified CONFIDENTIAL 270-C UNITED STATES SAVINGS BONDS - SERIES 7 AND G COMBINED Comparison of September sales to date with sales during the same number of business days in August and July 1942 (At issue price in thousands of dollars) : September : Oumulative sales by business days Date : daily : September : August I July I September as : sales : : : :percent of August ptember 1942 1 $ 7,528 $ 7,528 $ 12,222 $ 12,597 61.6% 2 9,811 17,339 28,810 21,986 60.2 3 9.397 26,735 41,258 32,441 64.8 4 10,678 37,414 54,105 49,175 69.2 5 10,713 48,127 71,552 62,561 67.3 8 18,550 66,678 84,777 84,413 78.7 fice of the Secretary of the Treasury, September 9, 1942. Division of Research and Statistics. urce: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. M Regraded Unclassified CONFIDENTIAL 270 - D UNITED STATES SAVINGS BONDS - TOTAL Comparison of September sales to date with sales during the same number of business days in August and July 1942 (At issue price in thousands of dollars) : September : Cusulative sales by business days Date : daily = I : sales September : August July September as : : : : :percent of August sptember 1942 1 $ 19,162 $ 19,162 $ 26,267 $ 28,418 73.0% 2 24,558 43,720 65,032 52,687 67.2 3 27,702 71,422 92,055 79,964 77.6 4 28,482 99,904 117,890 126,495 84.7 5 29,880 129,784 158,341 157,605 82.0 8 67,950 197,734 196,524 201,056 100.6 fice of the Secretary of the Treasury, September 9, 1942. Division of Research and Statistics. purce: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. Sales of United States savings bo270-E CONFIDENTIAL September 1 through September 8,1942 Compared with sales quota for same period (At issue price in millions of dollars) Series I : Series 7 and G 2 Total : Actual sales : Quota, : Sales : Actual sales : Quota, I Sales : Actual sales 1 Quota, I Sales : : Sept. 1 : Sept. 1 : to date I I Sept. 1 : Sept. 1 : to date : : Sept. 1 : Sept. 1 : to date to : : Daily : to : to : as x of : Daily : to : to # as $ of 1 Daily : to : to : as x of : date : date : quota : : date : date : quota : : date : date : quota : 1 $ 11.6 $ 11.6 $ 14.9 77.95 $ 7.5 $ 7.5 $ 6.9 108.7% $ 19.2 $ 19.2 $ 21.8 88.1% 14.7 26.4 34.5 76.5 9.8 17.3 16.6 104.2 24.6 2 43.7 51.1 85.5 3 18.3 44.7 55.5 80.5 9.4 26.7 26.4 101.1 27.7 71.4 81.9 87.2 17.8 62.5 81.0 77.2 10.7 37.4 35.6 105.1 28.5 99.9 116.6 85.7 19.2 81.7 98.3 83.1 10.7 48.1 42,2 5 114.0 29.9 129.8 140.5 92.4 8 49.4 131.1 143.3 91.5 18.6 66.7 58.1 114.8 67.9 197.7 201.4 98.2 9 168.8 67.8 236.6 10 193.4 76.7 270.1 11 220.6 84.4 305.0 12 239.2 90.1 329.3 24 272.7 99.7 372.4 15 288.2 105.0 393.2 16 307.6 112.1 419.7 17 327.2 119.2 446.4 18 350.1 125.7 475.8 19 365.4 130.5 495.9 n 399.6 141.0 540.6 22 415.7 147.0 562.7 23 436.2 155.2 591.4 24 457.1 163.4 620.5 25 481.4 171.0 652.4 26 497.4 176.6 674.0 28 532.7 188.7 721.4 29 549.2 195.5 744.7 30 570.0 205.0 775.0 fice of the Secretary of the Treasury, Division of Research and Statistics. September 9, 1942. rece: Actual sales figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Figures have been rounded and will not necessarily add to totals. Note: Quota takes into account both the daily trend during the week and the monthly trend during the month. 271 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE September 9, 1942 TO Secretary Morgenthau FROM Ferdinand Kuhn, Jr. You asked yesterday about Harold Mager, who wrote the article on inflation in the current issue of The Nation. Mr. Mager is a free-lance lawyer and writer who has recently turned his attention to economics. He has contributed very occasionally to "World Unity" and to the Journal of Abnormal Psychology. His two articles for the Nation have needed severe editing, but the editors of the Nation say that Mr. Mager is open to suggestion and is very easy to deal with. He did research work at one time for the Laura Spelman Fund and for the New York State Board of Housing, according to The Nation's own note about him, but his work for these agencies could not have been outstanding, as neither of the agencies remembers him. If you would like to see him, I can invite him here for Friday or early next week. J.K. W. W- W. us, W- W- W-W-W- W. W. w-w-w- w-w-w-w-w-w-W-W-W-W-W-W-W W- TREASURY DEPARTMENT 272 INTER OFFICE COMMUNICATION DATE September 9. 1942 TO Mr. Thompson FROM Mr. A In further response to your request of December 26, 1939, there is submitted herewith for the Division of Research and Statistics a memorandum listing, with brief descriptions, the studies or projects completed or under way, and the names of persons working on each, for the month of April 1942. DESTRUNESS DO SEP w VA ID 54 - - CELICE 273 DIVISION OF RESEARCH AND STATISTICS Report of Studies or Projects Completed or Under Way, and the Names of Persons Working on Each, for the month of April 1942 For convenience of reference, the studies listed are grouped under general subject heads. The names shown for persons working on each project include only those who participated fairly directly, as ex- plairied in the introductory note to the corresponding report submitted on December 28, 1939. No attempt has been made to cover also persons whose responsibility in each particular case was mainly in planning, supervising, or consulting. Financial Analysis I. Projects or studies completed 1. Two reviews of current developments in the high-grade securities markets were prepared, and memoranda were transmitted to the Secretary on April 2 and 17. Copies were given to Under Secretary Bell. - Mr. Haas, Mr. Murphy, Mr. Foy, Mr. Robbins, Mr. Rosen, Mrs. Miller, Miss Parker The reviews contained, in addition to analysis of the current situation, the following special studies: (a) Changes in bank holdings of United States securities; portfolio changes of the Guaranty Trust Company of New York. (April 2). - Mr. Foy, Mr. Robbins (b) Comparison of yields of high-grade bonds during World Wars I and II. (April 2). - Miss Parker (c) Carrying values of United States Government bonds held by banks. (April 17). - Mr. Robbins (d) Corporate and municipal bond flotations. (April 17). - Mrs. Miller 2. A memorandum was prepared, and was transmitted to the Secretary on April 22, on May cash market financing. - Mr. Haas, Mr. Murphy, Mr. Sandelin, Mr. Robbins, Mrs. Miller 3. Weekly memoranda were prepared commenting on changes in the yields of Treasury bonds and notes since March 19. Two memoranda, each with a table and chart, were prepared, 273 DIVISION OF RESEARCH AND STATISTICS Report of Studies or Projects Completed or Under Way, and the Names of Persons Working on Each, for the month of April 1942 For convenience of reference, the studies listed are grouped under general subject heads. The names shown for persons working on each project include only those who participated fairly directly, as ex- plained in the introductory note to the corresponding report submitted on December 28, 1939. No attempt has been made to cover also persons whose responsibility in each particular case was mainly in planning, supervising, or consulting. Financial Analysis I. Projects or studies completed 1. Two reviews of current developments in the high-grade securities markets were prepared, and memoranda were transmitted to the Secretary on April 2 and 17. Copies were given to Under Secretary Bell. - Mr. Haas, Mr. Murphy, Mr. Foy, Mr. Robbins, Mr. Rosen, Mrs. Miller, Miss Parker The reviews contained, in addition to analysis of the current situation, the following special studies: (a) Changes in bank holdings of United States securities; portfolio changes of the Guaranty Trust Company of New York. (April 2). - Mr. Foy, Mr. Robbins (b) Comparison of yields of high-grade bonds during World Wars I and II. (April 2). - Miss Parker (c) Carrying values of United States Government bonds held by banks. (April 17). - Mr. Robbins (d) Corporate and municipal bond flotations. (April 172. - Mrs. Miller 2. A memorandum was prepared, and was transmitted to the Secretary on April 22, on May cash market financing. - Mr. Haas, Mr. Murphy, Mr. Sandelin, Mr. Robbins, Mrs. Miller 3. Weekly memoranda were prepared commenting on changes in the yields of Treasury bonds and notes since March 19. Two memoranda, each with a table and chart, were prepared, Regraded Unclassified 274 - 2 - and were transmitted to the Secretary on April 16 and 24. - Mr. Haas, Mr. Murphy, Mr. Brown, Mr. Sandelin, Mr. Conrad, Mr. Kroll 4. A maturity calendar was prepared as of April 1, for each issue of direct and guaranteed bonds and notes of the United States. - Miss Lagos 5. Yields on public marketable securities issued by the United States Government and by Federal agencies were computed daily on the basis of over-the-counter closing quotations. A daily table and a weekly table with comparative data for earlier periods were. prepared summarizing this information. A chart for each issue was kept up to date showing daily price and yield figures together with comparative monthly data since 1935, since the date of issue, or since the date first traded. In addition, yields were computed daily on five high-grade corporate securities, three municipal securities, and two British Government issues. - Mr. Moody, Miss McCoy, Mr. Kroll 6. In response to the request by the Secretary on January 21, 1941, that measures be taken to obtain information to assist in carrying through the defense financing pro- gram, arrangements were made to obtain the necessary detailed statistics on the holdings of each issue of the public debt and of guaranteed securities by the various classes of holders. - Mr. Haas, Mr. Tickton, Mrs. Barnes, Mr. D. J. Leahy, Mr. Robbins, Miss Westerman, Mrs. Cambron, Mrs. Merkin, Mise Wood (a) Supervisionwas given in the preparation by the Statistical Unit of the Division of Loans and Currency of 100 tables, showing the information as of March 31, received from 7,000 banks and in- surance companies. The tables were completed on April 30, and were transmitted according to in- struction by the Secretary. (b) Tabulations were prepared, and were transmitted on April 9, to the Federal Reserve Banks of New York and Philadelphia, showing holdings of each issue of Government security in their respective districts, as of February 28. 275 - 3 - (c) A tabulation was prepared, and was transmitted on April 9, to the Board of Governors of the Federal Reserve System showing, by classes of banks and by issues, the amount of Government securities owned on February 28, by the banks covered in the survey. (d) A summary was prepared on April 6 of the data as of February 28, consisting of brief explana- tory text and six tables for publication in the Bulletin of the Treasury Department for April. (e) A memorandum and tables were prepared, and were completed on April 3, comparing subscriptions to the 21 percent Treasury bonds of 1952-55, with subscriptions to several earlier issues; and comparing allotments to the 21 percent Treasury bonds of 1952-55, with their ownership on February 28. (f) A memorandum and tables were prepared, and were completed on April 9, comparing book and par values of United States Government obligations held by member banks of the Federal Reserve System as of December 31, 1941. (g) Monthly tables and charts were prepared, and were completed on April 10, showing as of February 28, changes since June 30, 1941, in holdings of Govern- ment securities for the major classes of investors by type of security. (h) An analysis was prepared on April 23, showing the absorption of the public marketable debt in March. (1) A memorandum is being prepared, showing the cover- age of various classes of investors in Government securities included in the survey. (j) New letters were sent out to the banks and insur- ance companies on April 28, requesting comparable data as of April 30. 7. At the request of the Secretary on May 12, 1941, arrange- ments were made to prepare current statistical reports on the sales of United States savings bonds, series E, F, and G, and Postal savings stamps, on the basis of reports by the Treasurer of the United States, the Federal Reserve Banks, and the Post Office 276 - 4 - Department. The reports prepared during April were transmitted according to instructions by the Secretary. - Mr. Haas, Mr. Tickton, Mr. Brown, Mr. D. J. Leahy, Mr. Kroll, Mrs. Grossman, Miss Schmidt, Miss Wood (a) Daily tables were prepared, showing the dollar volume, of savings bonds sold in April, by series, with cumulative totals. (b) Daily tables were prepared, containing & compara- tive statement of sales of bonds, by series, in February, March, and April, with cumulative totals. The dollar volume was shown, with the absolute and percentage changes in the two latest months from the respective preceding months. (c) A table was prepared on April 1, showing sales of savings bonds, by series, in dollar volume, in each month from May 1941 through March. (d) Supervision was given in the preparation by the Statistical Unit of the Division of Loans and Currency of monthly tables, completed on April 30, showing sales of savings bonds, series E, for the month of March, in dollar volume, by Federal Reserve districts, States, cities, and counties, classified by sales agent and denomination. (e) A table was prepared on April 6, showing sales of savings bonds, series E, in dollar volume, by States, from May 1941 through February. (f) Supervision was given the Statistical Unit of the Division of Loans and Currency in the preparation of a table completed on April 7, showing per capita sales of savings bonds, series E, from May 1941 through February, by States. (g) A table was prepared on April 9, showing sales of savings bonds, series E, by States, as a percentage of total sales in the eight-month period, May through December, and in January and February, as a percentage of total sales in the eight-month period. Regraded Unclassified 277 - 5 - (h) Supervision was given the Statistical Unit of the Division of Loans and Currency in the preparation of a table completed on April 18, showing total sales in dollar volume of savings stamps, by States, from May 1941 through March. (1) A table was prepared on April 20, showing estimated total value of savings stamps, and the number of units sold, by denomination, in each month from May 1941 through March. 8. In further response to the request of Mr. Graves on February 10, for the tabulation of pledges for the purchase of savings bonds, series E, and savings stamps, in Oregon, supervision 1s being given in the tabulation by the Statistical Unit of the Division of Loans and Currency now in progress. - Mr. Reagh, Mr. Kroll 9. In further response to the request of the Secretary on December 28, a table was prepared on April 2, showing daily changes in stock of series E savings bonds on hand with weekly tables appended, showing number of pieces of series E savings bonds sold by weeks through April 1. The table was transmitted to the Secretary. Copies were given to Under Secretary Bell, Mr. Graves, and Mr.Broughton. The table was discontinued thereafter by instruction of the Secretary. - Mr. Tickton, Mr. Kelenson 10. In further response to the request of the Secretary on December 31, weekly memoranda and tables were prepared from data wired by the Federal Reserve Banks, showing the number of agents qualified to issue series E, savings bonds, by type of agent and Federal Reserve district, for April 4, 11, 18, and 25, and for earlier comparative dates. The reports were prepared, and were transmitted to the Secretary on April 8, 16, 22, and 28, respectively. Copies were given to Under Secretary Bell and Mr. Graves. - Mr. Tickton, Mr. Kelenson 11. At the request of Mr. Graves on April 1, quotas were worked out for each county in the country separately for savings bonds, series E, and combined for series F and G. The tabulations of these quotas were mailed by the War Savings Staff to State Administrators on April 15 for their information and comment. On April 20 and 21, tabulations again were made, showing county quotas for May 1942 of all series combined, with a total for the country. Quotas for June are now being prepared. - Mr. Reagh, Mr. Brown, Mr. Kroll, Mrs. Grossman Regraded Unclassified 278 - 6 - 12. In response to the request of the Secretary on December 15, arrangements have been made to obtain monthly reports from corporations on the progress of the payroll savings plan for savings bonds, series E. The information received 18 edited and prepared as a basis for the analyses listed below. - Mr. Haas, Mr. Tickton, Mr. Keats, Mr. Kelenson, Miss Westerman (a) Supervision was given the Statistical Unit of the Division of Loans and Currency in preparing the basic information for March 31, received in April from approximately 22,000 corporations. - Mr. Tickton, Mrs. Barnes, Mrs. Cambron, Mrs. Merkin (b) A memorandum and two tables were prepared from re- ports received in response to our letter of March 28, from 10,000 companies participating in the payroll savings plan during February. The first table showed the companies classified by size group, by degree of employee participation, and payrolls. The second table showed detailed data for each of the 40 largest companies. The report was prepared, and was transmitted to the Secretary on April 2. A copy was given to Mr. Graves. - Mr. Tickton, Mr. Kelenson, Mrs. Cambron (c) Supervision was given the Statistical Unit of the Division of Loans and Currency in the preparation of a tabulation covering the same kind of informa- tion as that in the first table in (b) for 11, 464 companies participating in the plan during March. The tabulation was transmitted to the Secretary and to Mr. Graves on April 24. - Mr. Tickton, Mr. Kelenson, Mrs. Cambron (d) Weekly tables were prepared, showing the number of organizations with payroll savings plans, Govern- ment and private, classified by size, type, and State, together with the number of employees eligible to participate. Tables were prepared as of March 28, April 4, 11, and 18, and were transmitted on April 3, 10, 17, and 24, respectively, according to instructions by the Secretary. - Mr. Tickton, Mr. Keats Regraded Unclassified 279 - 7 - 13. At the request of the Secretary on April 15, two tables were prepared, showing as of March 31, the operation of payroll savings plans, classified by the number of employees and the degree of employee participation (1) in firms having 5,000 employees or more; and (2) in firms with war supply contracts of two million dollars or more. The tables were transmitted to the Secretary on April 16. - Mr. Tickton, Mrs. Barnes, Mr. Keats, Mr. Kelenson, Mr. D. J. Leahy, Mr. Goldberg, Mr. Parsons, Miss Schmidt 14. At the request of the Secretary on April 21, & table in three parts was prepared, showing as of March 31, corpora- tions participating in the payroll savings plan, and having 5,000 employees or more, with the number of employees in each, classified by size of company, by Federal Reserve districts, and States. The table was transmitted to the Secretary on April 22, and copies were given to Under Secretary Bell, Mr. Graves, and the War Savings Staff. The third part of the table was transmitted to Mr. Mills on April 23, with copies for each Federal Reserve Bank. - Mr. Tickton, Mra. Barnes, Mr. Keats, Mr. Kelenson, Mr. D. J. Leahy, Miss Westerman, Mrs. Cambron, Mr. Parsons, Miss Schmidt 15. At the request of the Secretary on April 24, a table similar to that described in item 14 is being prepared. for companies having 500 to 5,000 employees. - Mr. Tickton 16. At the request of Mr. Graves on April 13, photostats of lists submitted by the War Savings Staff's State Administrators, showing names of firms in the various Federal Reserve districts installing payroll savings plans, were transmitted to the respective Federal Reserve districts on April 17, under cover of a letter signed by Under Secretary Bell. - Mr. Tickton, Mr. Keats 17. At the request of Mr. Houghteling on April 21, copies of the forms returned by railroad companies participating in payroll savings plans were transmitted to Mr. Houghteling on April 23. - Mr. Tickton, Mrs. Barnes, Mr. Kelenson 18. At the request of Under Secretary Bell on April 9, the Division was represented in conferences on April 29 and 30 regarding the Treasury Department payroll allotment campaign for the purchase of savings bonds. Quotas were worked out for the various salary groups. - Mr. Reagh, Mr. Kroll, Miss McCoy Regraded Unclassified 280 - 8 - 19. At the request of the Secretary on April 24, 1942, a memorandum was prepared, and was transmitted to him on April 28, concerning a survey to secure information on the time it took a selected group to obtain delivery of savings bonds purchased by mail or under the payroll savings plan. This memorandum suggested that the in- formation be obtained through the Federal Reserve Banks. A draft of a letter requesting the Federal Reserve Banks to secure this information was prepared April 29, and 18 awaiting approval by Under Secretary Bell. - Mr. Tickton 20. At the request of the Secretary on April 27, arrangements are being made to prepare a room for the Secretary's use containing charts showing the progress of the savings bond campaign. There will be about 600 charts showing daily, weekly, and monthly data on the operation of the payroll savings plan in firms throughout the country. The first of these charts will be ready in May. - Mr. Tickton 21. In further response to the request of the Secretary on July 28, 1941, tables were prepared, summarizing sales from August 1941 through March, of Treasury notes, Tax Series A and Tax Series B, by series, type of purchaser, and denomination. The tables were trans- mitted to the Secretary on April 15. Copies were given to Under Secretary Bell, Mr. Buffington, and Mr. Kilby. - Mr. Tickton, Mr. Kelenson 22. Further progress was made in the study requested by the Secretary on December 6 of the sources of funds for Government borrowing. The reports and tables prepared during April were transmitted in accordance with in- structions by the Secretary. - Mr. Haas, Mr. Murphy, Mr. Daggit, Mr. Lindow, Mr. Breithut, Mr. Weintraub, Mr. Mayo (a) A revision was completed on April 14, of the basic, analytical table on the gross national product, showing the disequilibrium implicit in the estimated flow of goods and services, and the estimated applica- tion of income to various uses, for the fiscal year 1943. - Mr. Lindow, Mr. Breithut, Mr. Mayo (b) Further revision was made of the table showing esti- mated sources of funds to finance the budgetary deficit for the fiscal year 1943, and was completed on April 3. - Mr. Murphy, Mr. Lindow 281 - 9 - (o) An appendix to the table listed under (b) was completed on April 3, containing a detailed analysis of personal savings, business savings, and other corporate savings and accumulations for the fiscal year 1943. - Mr. Murphy, Mr. Lindow (d) A memorandum and three tables were prepared on April 10, on the revision of the series from 1929 through 1941 on revenue and expenditures of State and local governments, with estimates for the fiscal year 1943, on the basis of Department of Commerce refinements. - Mr. Mayo (e) A chart is being developed to present the disequi- librium analysis. - Mr. Lindow, Mr. Breithut, Mr.Mayo I (f) A memorandum was prepared on April 10, concerning estimates of personal saving for use in the revision of the disequilibrium table dated April 14.- Mr. Breithut, Mr. Mayo (g) A memorandum was prepared on April 6, concerning the method of estimating business saving for the fiscal year 1943, as used in the disequilibrium table dated April 14. - Mr. Breithut, Mr. Mayo (h) A memorandum was prepared on April 20, for use in connection with the disequilibrium table concerning the estimated financial operations of Government corporations in the fiscal year 1943. - Mr. Mayo (1) A memorandum was prepared on April 24, developing estimates of gross national product for the calendar year 1943. - Mr. Mayo (J) A table was prepared, showing the valuation of 1tems necessary in deriving income payment figures from national income figures for the calendar years 1940 and 1941, and the fiscal year 1943. - Mr. Breithut, Mr. Mayo (k) Further study was made of the curtailment in output of consumers' goods. - Mr. Weintraub (1) Data are being compiled for measuring monthly changes in consumers' cash surpluses, for use in estimating the "inflationary gap". - Mr. Daggit 282 - 10 - (m) Further progress was made on the survey by the Bureau of Labor Statistics and the Bureau of Home Economics on consumer spending and saving. A meeting was attended on April 24 to discuss problems involved. - Mr. Daggit (n) At the request of Assistant Secretary Gaston on April 21, a memorandum was prepared on the prospective reduction in the standard of living. Two accompanying tables were prepared, one showing the per capita average supply of consumers' goods and services for the calendar years 1932 through 1941, and the aggregate volume necessary in the fiscal year 1943 to provide the same per capita supply of consumers' goods and services; the other showing the BLS cost-of-living index with component changes since June 1939. The memorandum was transmitted to Assistant Secretary Gaston on April 24. - Mr. Daggit, Mr. Lindow, Mr. Breithut, Mr. Mayo (o) Minutes on the conference with Mr. Hansen of the National Resources Planning Board on March 11 were prepared, and were completed on April 11. - Mr. Breithut 23. At the request of Under Secretary Bell, agenda, memoranda, and minutes were prepared in connection with the Treasury- Federal Reserve meetings held for the purpose of discussing financing policy. - Mr. Haas, Mr. Murphy, Mr. Lindow, Mr. Foy, Mrs. Miller (a) At the request of the Secretary on March 16, a study was completed on the advisability of issuing certificates of indebtedness. - Mr. Murphy, Mr. Lindow (b) At the request of Mr. Broughton on March 6, a memorandum was prepared on the "Circular for Proposed Non-negotiable Short-term Securities", with a table attached, entitled "United States Business Savings Notes". The memorandum was transmitted to Mr. Broughton on April 24. -Mr. Foy 283 - 11 - (c) At the request of Under Secretary Bell on March 11, a memorandum was prepared on the reaction of the Board of Governors and Federal Reserve Banks to two proposed tap issues, with a summary table analyzing the replies from the Chairman of the Board of Governors and the Presidents of four Federal Reserve Banks. The memorandum was trans- mitted to the Under Secretary on April 14. - Mr. Murphy, Mrs. Miller (d) A memorandum with table on the estimated volume of excess reserves on April 15, assuming that New York and Chicago were reclassified as reserve cities, was completed on April 25. - Mrs. Miller (e) A memoranduswas prepared, and was transmitted to the Secretary on April 27, on the member bank reserve position and the coming financing. - Mr. Murphy (f) At the request of the Secretary on April 29, 8. memorandum was prepared on the financing program agreed upon at the Federal Reserve Board on the afternoon of April 28, with suggested modifications for use at the meeting in the Secretary's office on the same date. - Mr. Murphy (g) In further response to the request of Under Secretary Bell on February 20, a study 18 being made of a special security for short-term funds. - Mr. Murphy, Mr. Lindow, Mr. Foy (h) In further response to the request of Under Secretary Bell on February 20, a study 1s being made of a special security for long-term funds. - Mr. Murphy Mr. Lindow, Mr. Foy (1) At the request of Mr. Broughton on April 30, a review is being made of the revised, proposed circular for short-term non-market securities. - Mr. Murphy, Mr. Foy (j) A table is being prepared to show estimated excess reserves as of December 31, 1941, if Chicago and New York City were reclassified as reserve cities, and if all other reserve cities, except the 12 reserve bank cities, were reclassified as country bank cities - Mr. Murphy, Mr. Foy, Mrs. Miller Regraded Unclassified 284 - 12 - (k) Minutes were prepared with respect to the meeting with representatives of the Federal Reserve System held on April 28, and & draft was prepared sum- marizing the program agreed upon. - Mr. Lindow (1) Minutes are being prepared of three meetings held on April 29, with the Advisory Committee of Bankers. - Mr. Murphy 24. Three proposals of the RFC that the Secretary request that corporation to purchase stock in a bank were ex- amined. - Mr. Murphy, Mr. Sandelin, Mr. Rosen, Miss Parker, Mrs. Miller 25. In further pursuance to the request of the Secretary on July 8, 1941, a table was prepared, and was transmitted to him on April 20, showing airplane deliveries from October 1941 through March 1942. - Mr. Tickton 26. At the request of the Secretary on November 3, arrange- ments have been made to obtain certain information on the progress of the programs under Lend-Lease, the Maritime Commission, and the Army Air Corps. - Mr. Haas, Mr. Lindow, Mr. Wagner (a) A chart 18 being prepared to show appropriations, allocations, obligations, and disbursements, for Lend-Lease purchases, through March 31. (b) A chart 1s being prepared to show appropriations, contracts awarded, and disbursements of the Maritime Commission through March 31. (c) A chart is being prepared to show appropriations, contracts awarded, and disbursements, under the Army Air Corps, through March 31. 27. Four conferences in the Secretary's and the Under Secretary's offices were attended on April 1 (two meetings), April 4, and 15, for the purpose of discussing financing problems. - Mr. Lindow 28. A memorandum was prepared to Under Secretary Bell, and was forwarded to him on April 20, transmitting letters addressed to the three Federal supervisory agencies of banks, requesting that data be furnished on the par value of United States securities. - Mr. Murphy, Mr. Tickton, Mr. Robbins 285 - 13 - 29. At the request of Mr. Buffington on April 6, a memorandum with a table was prepared on a survey of probable new security offerings, and was transmitted to him on April 7. - Mr. Foy, Mr. Rosen 30. At the request of Mr. Buffington on April 6, a memorandum with a table was prepared on prospective new capital issues, and was transmitted to him on April 28. - Mr. Foy, Mrs. Miller, Miss Parker 31. At the request of Mr. Kilby on April 13, three tables were prepared, showing an analysis of subscriptions to recent issues of Government securities on a basis as comparable as possible with that which he used for the new certificates. The tables were transmitted to Mr. Kilby on the same date. - Mr. Murphy, Mrs. Miller, Miss Lagos 32. At the request of Under Secretary Bell on April 6, an alternative reply was prepared, for his signature, to a letter from Mr. A. B. Wilkinson, Knoxville, Tennessee, with respect to deposits in the Civil Service Retirement Fund as against purchases of war bonds by Civil Service employees. The letter was mailed on April 9. - Mr. Murphy 33. At the request of Under Secretary Bell on April 13, a memorandum was prepared on & proposal to issue a special series of savings bonds to religious, educational, charit- able organizations, and unions. The memorandum was trans- mitted to Under Secretary Bell on April 17. - Mr. Sandelin 34. At the request of Under Secretary Bell on April 17, a reply was prepared for signature of the President to a letter from Vice President Wallace with respect to compulsory savings as against voluntary savings. The letter was transmitted to the President on April 21. - Mr. Murphy 35. At the request of Mr. Broughton on March 19, & letter was prepared to Mr. C. Raymond Allen, concerning Treasury policy on withdrawal of savings deposits for investment in Defense savings bonds. The letter was signed by Under Secretary Bell on April 11. - Mr. Murphy, Mr. Rosen 36. At the request of Under Secretary Bell on April 17, á reply was prepared, for signature of the Secretary, to a letter from Senator Vandenberg, with respect to voluntary purchases of War savings bonds. A memorandum to the Under Secretary was prepared also, and was trans- mitted to him on April 20. The letter to the Senator was mailed on April 21. - Mr. Murphy 286 - 14 - 37. At the request of Under Secretary Bell on April 22, a revision was made of a reply prepared by Mr. Cunningham to a letter from Senator Brooks, with respect to the use of War savings bonds 8.8 prizes. The letter to the Senator was transmitted to the Under Secretary on April 24. - Mr. Murphy 38. In response to various verbal requests from members of the War Savings Staff, information was furnished by telephone, concerning consumer income, expendi- tures, etc. A table was prepared, and was forwarded on April 21, showing estimated income payments in the fiscal year 1942, employment in February 1942, and Federal expenditures, taxes, and borrowing in the fiscal years 1942 and 1943. In addition, a 19-page manuscript containing questions and answers on the savings bond campaign was edited and revised. This information was given for use in preparing material for release by the War Savings Staff. - Mr. Lindow, Mr. Breithut, Mr. Mayo, Mr. Wagner 39. At the request of Mr. Kuhn on April 9, a review was made of an address for delivery by Mr. Oscar R. Kreutz of the Federal Savings and Loan Insurance Corporation in Atlanta on holdings and building savings volume during the war period. The ad- dress was discussed with Mr. Kuhn on April 9. - Mr. Murphy 40. At the request of Under Secretary Bell on April 13, a memorandum was prepared on recent developments in consumer credit, and was transmitted to him on April 13. - Mr. Murphy 41. At the request of the Secretary on April 14, a memorandum was prepared on consumer credit, together with a table and a chart showing the changes and the amount outstanding from December 1940 to date. The report was transmitted to the Secretary on April 14, and a copy was given to Mr. Buffington. - Mr. Murphy, Miss Lagos 287 - 15 - 42. At the request of Under Secretary Bell on April 25, a study was made of the third tentative draft of Regulation W, Amendment No. 4, to be effective May 1, submitted by Mr. Chester Morrill, Secretary, Board of Governors of the Federal Reserve System. A letter was prepared to Mr. Morrill for signature of the Secretary. The letter was mailed on April 28. - Mr. Murphy 43. Charts were prepared, and were transmitted to the Secretary on April 3, showing the effect of rationing on personal saving. - Mr. Murphy, Mr. Lindow 44. A conference was attended in Mr. White's office on April 7, on the problems of preventing inflation by use of consumer expenditure rationing and forced saving. - Mr. Lindow 45. At the request of Under Secretary Bell on April 14, comments were prepared on a memorandum addressed to him by Mr. A. L. Mills, Jr., with respect to the deposit of legal bank reserves with the Treasury. The memorandum was discussed with the Under Secretary on April 23. - Mr. Murphy 46. A memorandum was prepared on interest rates and price freezing, and was transmitted to the Secretary on April 23. - Mr. Murphy 47. A memorandum was prepared on April 7; reviewing the report of the Secretary of Commerce to the President, dated March 21, 1942, covering war and defense activities of the RFC and its subsidiaries through March 7, 1942. - Mr. Wagner 48. At the request of Under Secretary Bell on April 1, & memorandum was prepared on the proposal of Governor Black of the Farm Credit Administration to impose a special income tax upon profits derived from the sale of agricultural and forest land. The memorandum was transmitted to the Under Secretary on April 17. - Mr. Murphy, Mr. Weintraub 49. At the request of Under Secretary Bell on April 7, a reply was prepared for signature of the Secretary to the letter from the Director of the Bureau of the Budget with respect to increased postal rates on third class and air mail. The letter was transmitted to the Director of the Bureau of the Budget on April 10. - Mr. Murphy 288 - 16 - 50. At the request of Under Secretary Bell on April 10, a study was made of a plan submitted by the Curtis Publishing Company for organizing American business in cooperation with the Government to help stabilize present and post-war conditions. A memorandum en- titled "The Gallager Plan for Sale of 'Merchandise Bonds'" was transmitted to the Under Secretary on April 24. - Miss Parker 51. At the request of the Division of Tax Research on April 1, a letter was prepared for signature of Mr. Paul, to Mr. Carl H. Chatters, in regard to his estimates of the ownership of State and local government securities by individuals, and the bases used in their derivation. The letter was mailed on April 7. In response to a reply from Mr. Chatters on April 19, a letter was pre- pared, and was transmitted to Mr. Paul on April 29 for his signature, addressed to Mr. Chatters, describing in detail the method used in making the Treasury estimates of the ownership of State and local govern- ment securities. - Mr. Murphy, Mr. Lindow, Mr. Conrad 52. A memorandum was prepared, and was transmitted to Mr. Blough on April 8, on Treasury estimates of the ownership of State and local government securities outstanding. - Mr. Lindow 53. At the request of Mr. Heffelfinger on April 9, a letter was prepared for signature of the Secretary to Senator Tydings, giving the amount of United States and State and local government securities held by the various types of banks and by insurance companies. The letter was transmitted to the Senator on April 10. - Mr. Conrad 54. Analysis of Mr. Viner's proposal for a new system of allotting Treasury bills has been abandoned since the reason for such analysis has been eliminated by the institution of a posted bill rate. - Mr. Murphy 55. At the request of Under Secretary Bell on March 21 and 30, an analysis was made of a memorandum by Dr. Burgess entitled "Treasury War Borrowing and the Banks", and a reply to Dr. Burgess W&B prepared commenting on the memorandum. The reply was transmitted to the Under Secretary on April 7. - Mr. Murphy 56. At the request of Mr. Upham on March 30, a memorandum was prepared and was transmitted to him on April 1, on interest- bearing United States securities subject to surtax and the amount held by banks. - Mr. Conrad Regraded Unclassified 289 - 17 - 57. The analysis of a proposed industrial loan corporation bill of 1942, requested by Mr.Morris on December 16, has been superseded by Executive Order 9112, March 26, authorizing all banks to finance contracts to facilitate the prosecution of the war. - Mr. Foy 58. At the request of Mr. Buffington on April 15, a table was prepared, showing a comparison of inventories and bank loans of 25 large corporations. The table was transmitted to Mr. Buffington on April 16. - Miss Parker 59. At the request of Mr. Buffington on April 21, data were obtained on the J. I. Case Threshing Machine Company, and were transmitted to him on that date. - Mrs. Miller 60. At the request of Under Secretary Bell on April 17, a letter was prepared, for signature of the Secretary, to Mrs. Roosevelt, transmitting an analysis of the tax proposals of Dr. Joseph E. Goodbar, submitted by Mr. George A. Miller. The letter was transmitted to the Under Secretary on April 20. - Mr. Murphy, Mr. Rosen 61. At the request of Under Secretary Bell on April 6, a review was made of a draft of an article for his signature for distribution to Latin American newspapers. The article was discussed with the Under Secretary on April 15. - Mr. Murphy 62. At the request of Under Secretary Bell on April 15, drafts of letters were prepared, commenting on proposed amendments to the National Housing Act. Drafts of these letters, addressed to the Bureau of the Budget and to the Senate Committee on Banking and Currency, were forwarded to the Legal Division on April 17. - Mr. Lindow, Mr. Wagner 63. At the request of Mr. Tietjens on March 26, a report was reviewed on 8. 2146, a bill to amend the Home Owners Loan Act of 1933, as amended, and on S. 2147, a bill to amend Title IV of the National Housing Act, as amended, and S. 2148, a bill to amend the Federal Home Loan Bank Act, as amended.A revised proposed report was prepared, addressed to Senator Wagner, Chairman of the Committee on Banking and Currency, for signature of the Secretary, and a memorandum was prepared to Mr. Tietjens, explain- ing the changes. Both were transmitted to Mr. Tietjens on April 7. - Mr. Murphy, Mr. Sandelin Regraded Unclassified 290 - 18 - 64. At the request of Mr. Tietjens on April 25, a review was made of a proposed report on S. 2325, a bill to reduce interest rates on mortgage loans made by Federal land banks and by the land bank commissioner on loans by the RFC for drainage and similar districts. The report was transmitted to Mr. Tietjens on April 27.- Mr. Murphy II. Projects or studies under way 1. A study 18 being made of the relative interest costs of short- and long-term borrowing. - Mr. Foy, Mr. Barnett, Mr. Rosen 2. A study 18 being made of the effect of the maturity, call period, coupon, premium, and size of issue on the prices and yields of United States securities. - Mr. Conrad 3. A memorandum is being prepared on & negotiable security for continuous sale. - Mr. Murphy 4. A study is being made of developments in the reserve position of the banks. - Mrs. Miller 5. Historical tables are being prepared which will present various data on new Treasury notes and bonds and on guaranteed new issues. Three tables have been completed. Others are in process. - Mr. Conrad, Mr. Rosen 6. A revision 1s being made as of June 30, 1941, of the estimates of the ultimate increase in interest costs which would result from removal of the tax-exemption privilege from all public securities. - Mr. Murphy, Mr. Lindow, Mr. Conrad 7. A study is being made of war-financing measures of belligerent nations in the present war. - Mr. Sandelin 8. A study 18 being made of the market action of the various maturity classes of Government securities in relation to the type of holder. - Mr. Conrad 9. At the request of Mr. Surrey on January 1, a study 18 being made of the amortization of bond premium and discount. - Mr. Murphy 291 - 19 - 10. A memorandum is being prepared on the desirability of conducting the war finance as it was in the last World War, by war loan drives. - Mr. Foy 11. At the request of Assistant Secretary Gaston on January 20, a review 18 being made of "A Memorandum on Financing the War", by Mr. Robert L. Owen. - Mr. Foy 12. A study is being made of the post-war effects of a large volume of demand debt. - Mr. Murphy, Mr. Lindow, Mr. Foy 13. A study is being made of the sources of funds available for borrowing by the British Government comparable to the study in progress for this country, as described in Financial Analysis, I, item 22. - Mr. Weintraub 14. At the request of Under Secretary Bell on March 30, a study is being made of replies to the circular letter of March 20 from the Secretary to 7,500 owners of Series F and G savings bonds - Mr. Murphy 15. At the request of the Division of Tax Research on March 30, cooperation is being given in preparing a report on tax-exempt securities. The following items were prepared during the month. - Mr. Murphy, Mr. Lindow, Mr. Conred (a) A review was made of estimates of tax differentials on various classes of securities - Mr. Lindow, Mr. Conrad (b) A memorandum was transmitted to Mr. Blough on April 2, containing a proposed appendix to the report, entitled "Estimate of the market value of the tax-exemption privilege of long-term high-grade State and local securities as of March 1, 1942". A revision of the proposed appendix as of April 1, 1942, was transmitted to Mr. Blough on the same date. - Mr. Murphy, Mr. Lindow, Mr. Conrad 292 - 20 - (o) A memorandum was transmitted to Mr. Blough on April 10, containing B. proposed appendix to the report entitled "Treasury estimates of the owner- ship of State and local government securities outstanding". - Mr. Lindow, Mr. Conrad 16. At the request of Mr. George F. Milton, Consultant, Defense Savings Staff, on March 23, a complete file of tables 18 being prepared giving the history of sales of Defense savings bonds. - Mr. Reagh 17. At the request of Mr. Buffington on April 11, a memorandum 18 being prepared, analyzing reports re- ceived concerning subscriptions to the issue of t percent certificates of indebtedness. - Mr. Murphy, Mr. Tickton, Mr. Robbins, Miss Westerman 18. At the request of Mr. Buffington on April 10, a memo- randum is being prepared onsnew capital issues used to refund bank loans. - Mr. Murphy, Mr. Foy 19. A memorandum is being prepared on the relationship of selective control of bank credit and of new capital issues. - Mr. Murphy 20. At the request of Mr. Bartelt on April 10, comménts are being prepared on a memorandum prepared by Mr. Loafman in accordance with the request of Under Secretary Bell, that consideration be given to the change of the basis of public debt statements appearing in the Secretary's Annual Report from the so-called revised or actual basis to the so-called unrevised Daily Treasury Statement basis. - Mr. Murphy, Mr. Lindow, Mr. Tickton 21. At the request of Under Secretary Bell on April 21, a study 18 being made of currency in circulation. - Mr. Weintraub 22. At the request of Mr. Buffington on April 15, a memorandum 1s being prepared on the implications for Treasury finano- ing of the enforcement by the Securities and Exchange Com- mission of the Public Utility Act of 1935. - Mr. Murphy, Mr. Rosen 23. At the request of Mr. Bloan on April 18, a memorandum is being prepared on the effect of sales of War savings bonds on living costs of families with specified incomes. - Mr. Lindow, Mr. Wagner 293 - 21 - 24. At the request of Under Secretary Bell on May 31, 1940, replies are being prepared to certain questions asked by the Wagner Committee preparatory to its investiga- tion of banking and monetary conditions pursuant to Senate Resolution 125, 76th Congress, 3rd Session. - Mr. Haas, Mr. Murphy, Mr. Foy 25. At the request of Under Secretary Bell on June 16, 1941, cooperation was given in preparing replies to the list of questions accompanying a letter from Senator Tydings of May 5. The information is for use by the Senate Committee created to find ways and means of automatically balancing the Federal Budget in times of peace. A pro- posed reply was sent to the Under Secretary on June 18, 1941. - Mr. Murphy, Mr. Foy 26. At the request of the Office of the General Counsel on April 11, a memorandum is being prepared on H.R. 6886, a bill to provide for tolls with respect to the use for commercial navigation, of the improved inland waterways of the United States, for the purpose of reimbursing the United States for expenditures made in improving such waterways. - Mr. Murphy, Mr. Foy, Mr. Lindow 27. At the request of Under Secretary Bell on April 20, a review was made, and a revision 18 being prepared of Mr. White's draft of a reply to Representative Patman, with respect to H.R. 6391, a bill to provide for issuance of non-negotiable United States bonds to Federal Reserve Banks and terminating the authority of the Treasury to issue other interest-bearing obliga- tions of the United States to commercial banks, and-for other purposes. - Mr. Murphy Revenue Estimates I. Projects or studies completed 1. The regular monthly statement was prepared, showing the latest revised estimates of receipts, by months and by principal sources of revenue, for the period April-June 1942, and fiscal 1943. The statement was transmitted to the Bureau of Accounts. - Mr. Delcher 2. The regular monthly summary comparison was prepared, showing estimated receipts and actual receipts in March 1942 on the daily Treasury statement basis.- Mr. Delcher 294 - 22 - 3. The regular monthly detailed comparison was prepared, showing estimated and actual receipts in March 1942, based on the collections classification. - Mr. Delcher 4. A revision of the budget estimates of receipts for the fiscal years 1942 and 1943 was prepared, and was trans- mitted to the Director of the Bureau of the Budget on April 21- Mr. O'Donnell, Mr. Daggit, Mr. Leahey, Mr. Kelly, Mr. Smith, Mr. Jorgensen, Mr. Lusk, Mr. Colclough, Mr. Chevraux, Mr. Saunders, Miss Smith 5. A forecast of the monthly distribution of receipts in the fiscal years 1942 and 1943 was prepared on the basis of the revised budget estimates. - Mr. O'Donnell, Mr. Daggit, Mr. Delcher, Miss Spiegel, Mr. Colclough, Miss Smith 6. In connection with the proposed revision of the revenue laws in 1942, a number of revenue estimates, listed be- low, were prepared at the request of Senator George, Assistant Secretary Sullivan, Mr. Paul, Mr. Tarleau, and the Division of Tax Research. - Mr. O'Donnell, Mr. Leahey, Mr. Kelly, Mr. Smith, Mr. Jorgensen, Mr. Delcher (a) A detailed estimate was prepared, and was trans- mitted in a memorandum to Mr. Blough on April 30, of the revenue yield of a net value-added tax, assuming six different taxpayers' bases, on two tax credit assumptions. (b) Estimates were completed, and were transmitted in a memorandum to Mr. Blough on April 15, of the yield from estate and gift taxes on the basis of four changes, and their combined effect. (c) A table was completed, and was transmitted in a memorandum to Mr. Blough on April 16, showing for each tax under miscellaneous revenue the present expected revenue and the expected in- crease under the rates proposed by the Treasury. (a) An estimate was completed, and was transmitted in a memorandum to Mr. Blough on April 9, of the in- crease in revenue from a 100 percent tax on net incomes in excess of $5,000. Regraded Unclassified 295 - 23 - (e) Estimates were completed, and were transmitted in a memorandum to Mr. Blough on April 13, of the additional revenue resulting from reduction of personal exemptions and credit for dependents under the present and proposed laws, with analysis of six aspects of its effects. (f) Estimates were completed, and were transmitted in a memorandum to Mr. Blough on April 16, on the bases of the present law and proposed rates, for mandatory joint returns, on several separate assumptions. (g) A table was prepared, and was transmitted in a memorandum to Mr. Blough on April 16, giving the tax base used for estimates of individual and corporate income and excess-profits taxes. (h) In connection with the Boland Bill (H.R. 6358) and the Treasury proposals for taxing capital gains and losses, estimates were prepared, and were transmitted in a memorandum to Mr. Blough on April 15, of the revenue yield, on six dif- ferent assumptions. (1) Estimates were prepared, and were transmitted in a memorandum to Mr. Blough on April 6, of the effect of proposals to eliminate percentage deple- tion and the option to charge as an expense in- tangible development costs, and the combined effects of both. (j) A revision was prepared, and was transmitted to Mr. Blough in a memorandum on April 9, of the estimates from the individual income tax sub- mitted to Mr. Blough on March 2. The revision allowed for the interacting effect of the entire Treasury program, on five different assumptions. (k) Estimates were prepared, and were transmitted in a memorandum to Mr. Blough on April 13, of the net income of all net income corporations, with specified component detail. (1) An estimate was prepared, and was transmitted in a memorandum to Mr. Tarleau on April 13, of the flat percentage rate on long-distance telephone calls necessary to yield the revenue which would be raised under the bracket rates proposed by the Treasury on March 3. Regraded Unclassified 296 - 24 - (m) Estimates were prepared, and were submitted in a memorandum to Mr. Blough on April 14, of the increase in income taxes if interest on outstanding issues of State and local government securities be made subject to all Federal income taxes, on three different assump- tions. (n) Estimates were prepared, and were transmitted in a letter to Mr. Stam on April 15, of the increase in revenue over the estimated yield under the present law for each of four income tax schedules, on two assumptions. (o) An estimate was prepared, and was transmitted in a memorandum to Mr. Blough on April 15, of the dis- tribution of the number of taxable returns based on the calendar year 1941 income. (p) Estimates were prepared, and were transmitted in a memorandum to Mr. Blough on April 15, of the yield of a compulsory savings plan of 5 percent of gross income. (q) Two tables were prepared, and were transmitted under cover of a memorandum to Mr. Blough on April 16, showing the estimated increase in revenue from the proposed tax program and the estimated full-year effect of indicated excises at forecast fiscal year 1943 levels of business. (r) Estimates were prepared, and were transmitted in a memorandum to Mr. Blough on April 16, of the combined effect of specified reductions of personal exemptions and of substitution of a new surtax rate schedule. (s) A table was prepared, and was transmitted in a memorandum to Mr. Paul on April 17, showing the latest estimates of net income taxes, and dividends of corporations with positive net income, 1936 through 1942. (t) A table was prepared, and was transmitted in a memorandum to Mr. Blough on April 17, showing the estimated receipts in the fiscal year 1943, assum- 1ng enaotment of the Treasury's proposals, effective July 1, 1942. Regraded Unclassified 297 - 25 - (u) Two tables were prepared, and were transmitted under cover of a memorandum to Mr. Paul on April 21, showing estimated revenue for the fiscal year 1943, assuming enactment effective July 1, 1942, of the Treasury program and the estimated increase due to changes incorporated in the Treasury program. (v) An estimate was prepared, and was transmitted in a memorandum to Mr. Blough on April 22, of the effect of limiting the special credit for earned income, in connection with mandatory joint returns, to $50 instead of $100. (w) An estimate was prepared, and was transmitted in a memorandum to Mr. Blough on April 22, of the effects of specified reductions of personal ex- emptions and dependent credits respectively, on the basis of the Treasury's proposed surtax schedule. (x) Estimates were prepared, and were transmitted in a memorandum to Mr. Blough on April 22, of the yield of the mandatory joint returns provision after specified allowances, and of their combined effect. (y) An estimate was prepared, and was transmitted in a memorandum to Mr. Blough on April 25, of the portion of the excess-profits tax under the Treasury proposal which would be considered as compulsory savings. (z) An estimate was prepared, and was transmitted in a memorandum to Assistant Secretary Sullivan on April 28, of the number of individuals affected by the President's proposal to limit net income after taxes to a maximum of $25,000 on two bases. (a') A tabular exhibit was prepared, and was transmitted under cover of a memorandum to Mr. Blough on April 28, showing the estimated loss in revenue from proposed individual income tax changes with respect to three specified types of credit. (b') Tentative estimates were prepared of the effect of six proposed changes in corporation taxes at five income tax rates. Regraded Unclassified 298 - 26 - (0') The following material was prepared, for repro- duction in the confidential Committee print, of data on the proposed revenue bill of 1942, sub- mitted to the Committee on Ways and Means of the House of Representatives: Exhibit 1. Estimated receipts, fiscal year 1942 and fiscal year 1943 (April 1942 revision). Exhibit 7. Estimated excess profits net income and excess-profits credit of corpora- tions estimated to pay excess-profits taxes on calendar year 1942 incomes. Exhibit 8. Estimated revenue effect of corporation income-tax changes proposed by the Joint Committee on Internal Revenue Taxation. Exhibit 9. Estimated effect on corporation taxes of the Robertson proposal. Exhibit 10. Estimated revenue effect on corporation taxes at levels of income estimated for calendar year 1942 of the Robertson pro- posal No. 2. Exhibit 22. Statement entitled "Capital-stock tax and declared value excess-profits tax data" with four tables. Exhibit 23. Estimated revenue effect on corporation taxes at levels of income estimated for calendar year 1942, of repeal of capital stock and declared value excess-profits taxes. Exhibit 24. Estimated revenue effect on corpora- tion taxes at levels of income estimated for calendar year 1942 of the Robertson proposal No. 3. Exhibit 27. Estimated calendar-year liabilities for the capital-stock and declared value excess- profits taxes. 299 - 27 - 7. Studies were completed for revising and improving methods of estimating revenues from taxes on the following: - (a) small cigarettes; (b) coin-operated machines; (c) bowling alleys; and (d) matches. - Mr. Daggit, Mr. Colclough, Mr. Saunders, Miss Smith II. Projects or studies under way 1. Progress has been made on the analysis of each component of the September revised estimates of miscellaneous internal revenue, excluding capital stock, estate, and gift taxes, for the fiscal years 1942 and 1943. - Mr. Daggit, Miss Spiegel, Mr. Colclough, Miss Smith 2. An analysis 18 in preparation of each component of the April revised estimates of miscellaneous internal revenue, excluding capital stock, estate, and gift taxes, for the fiscal years 1942 and 1943 - Mr. Daggit, Mr. Colclough 3. In connection with the proposed revision of the revenue laws in 1942, a number of revenue estimates, listed below, are being prepared at the request of the Division of Tax Research. - Mr. O'Donnell, Mr. Leahey, Mr. Kelly, Mr. Smith, Mr. Lusk, Mr. Delcher (a) An estimate is being made of the additional revenue if mutual non-life insurance companies taxable under Section 207 of the Internal Revenue Code were made taxable as stock non-life insurance companies taxable under Section 204, and the ex- emption under Section 101(11) were restricted to local mutual companies of the assessment type. (b) An estimate 1s being made of the revenue which would result if the Canadian corporate tax system were substituted for the present system in this country. (c) An estimate 1s being made of the total revenue and increase over the existing law which would result from the adoption of the British individual and corporate income and excess-profits tax structure. (d) With reference to the excess-profits estimate completed on January 17, a breakdown is being made of the income and tax figures before and after the proposed change in the excess-profits tax credit, by detailed industrial and size classifications of corporations. Regraded Unclassified 300 - 28 - (e) An estimate 1s being made of the revenue which would result from modification of treatment of capital gains and losses by providing that the decedent's basis for the computation be made the basis in the hands of the persons receiving the property. (f) An estimate is being made of percentage depletion. (g) An estimate 18 being prepared of the increase in revenue under the present and the proposed rates from adoption of (1) the Wood Plan and (2) manda- tory joint returns as recently proposed. (h) An estimate 18 being prepared of the effect of the latest estimate of revenue from mandatory joint returns on the community property States. (1) An estimate 1s being prepared of the number of taxpayers under the manufacturers', wholesale, and retail forms of sales taxes comparable with Treasury estimates of sales tax revenue yields. (j) Estimates are being prepared of yield from the tax on capital gains and losses assuming modi- fication on three bases, under a number of variations which might be incorporated. (k) Estimates are being prepared of the yield from a specified withholding tax; compulsory savings tax, on two bases; and a specified war consumption tax, on two assumptions. 4. Studies are in process for estimating revenues from proposed taxes on soft drinks, candy, and chewing gum.- Mr. Daggit, Miss Spiegel, Miss Smith 5. A study 1s in process for revising and improving methods of estimating revenues from the tax on transportation of persons. - Mr. Daggit, Miss Spiegel, Miss Smith Regraded Unclassified 301 - 29 - Economic Conditions Related to Fiscal and Revenue Matters I. Projects or studies completed 1. Memoranda on the business situation were prepared, and were transmitted to the Secretary on April 6, 13, 20, and 27. - Mr. Haas, Mr. Daggit, Mr. Chevraux, Miss Ziegler These memoranda contained in addition to analysis of the current situation the following special studies: (a) Percentage change in retail sales by type of store from February 1941 to February 1942. (Chart in memorandum of April 6.) - Mr. Daggit, Mr. Colclough, Miss Spiegel (b) National income payments and related components. (Chart in memorandum of April 13.) - Mr. Daggit, Mr. Colclough (c) Percentage change in the FRB index of industrial production and selected components in February and March 1942 compared with the 1935-39 average. (Chart in memorandum of April 27.) - Mr. Daggit, Mr. Chevraux, Mr. Colclough 2. Monthly or weekly reports are received from 25 individual companies, in response to the Secretary's requests giving confidential data on new orders and sales. The data in these reports are tabulated and charted currently for the Secretary's information, and are also combined into an index of new orders, which accompanies the memorandum on the business situation. - Miss Washabaugh. Miss McLachlan 3. Memoranda on employment under the Work Projects Adminis- tration were prepared on April 6, 13, and 20. - Miss Washabaugh, Miss McLachlan 4. Compilations were made of daily quotations on selected commodities, and daily and weekly figures on selected business indexes, foreign and domestic security trans- actions, security prices, and exchange rates, as well as other data for the Secretary's chart book. - Mr. Chevraux 5. In further response to the request of Mr. Leon Henderson of July 19, 1941, copies of charts on commodity prices were transmitted to him, as indicated below. - Mr. Daggit Regraded Unclassified 302 - 31 - 11. The Dow-Jones composite stock averages as of the end of each month were brought up to date as of March 31. - Mr. Daggit, Miss Spiegel 12. A reply was prepared on April 25, for signature of the Secretary, to a letter from Mr. R. W. Wilson, President of the Advance Aluminum Castings Corporation, suggesting an inventory of idle manufacturing space. The letter was mailed on April 29. On the same date, a letter was prepared for signature of the Secretary to Mr. Donald Nelson, referring Mr. Wilson's letter to the War Production Board for consideration. - Mr. Lindow 13. For use in revenue estimating, an estimate was made of the Standard Statistics index of 420 stock prices, unrevised, for the year 1941 and for December 1941. - Mr. Daggit, Miss Spiegel 14. For use in revenue estimating, forecasts were made of five basic business indexes for the fiscal years 1942 and 1943. - Mr. Daggit, Mr. Colclough, Mr. Saunders, Miss Smith Actuarial Problems I. Projects or studies completed 1. At the request of Mr. Fisher, Chief, Retirement Division, Civil Service Commission, on January 28, the Board of Actuarieshas prepared sets of factors to determine the immediate annuities of those eligible for retirement under section 1(d) and section 5(a) of the Civil Service Retirement Act, as amended on January 24. A reply to the request was prepared, was signed by the three Board members, and was mailed on April 11. - Mr. Reagh, Mr. Brown, Mr. Kroll 2. In further response to the request of Dr. Falk of the Social Security Board on January 7, a final check was made of the Second Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance Trust Fund. Two signed copies received from the Social Security Board on March 27 were signed by the Secretary, and were transmitted to both Houses of Congress on April 7. Printer's proof was reviewed and was forwarded to the Bill Clerk of the House of Representatives on April 25. - Mr. Reagh, Mr. Brown, Miss Westerman Regraded Unclassified 303 - 30 - The movements of the BLS index of 28 basic commodities compared with the BLS wholesale price index of 889 com- modities were shown from 1936 to date. Four charts, as of April 4, 11, 18, and 25, were transmitted on April 7, 14, 21, and 28, respectively. Four charts showed the movements of the indexes of 12 foodstuffs and 16 industrial raw materials, and percentage changes for each commodity from August 1939 and from December 6, to current dates. These charts, as of April 2, 10, 17, and 24, were transmitted on April 7, 14, 21, and 28, respectively. 6. In further response to the request of the Secretary on January 28, memoranda and charts were prepared on export freight movements and lighterage freight in storage and on hand for unloading in New York Harbor, as of March 27, April 3, 10, 17, and 24, and were transmitted to him on April 1, 8, 15, 22, and 29, respectively. Copies were given to Mr. Kamarck in further response to his request of December 4. - Mr. Daggit 7. A memorandum was prepared, and was transmitted to Assist- ant Secretary Gaston on April 3, confirming data supplied by telephone on the BLS cost-of-living and the BLS all- commodity indexes. - Mr. Daggit, Miss Spiegel 8. At the request of the Secretary on April 28, a memorandum analyzing the OPA price ceiling plan was prepared, and was transmitted to him on April 30. - Mr. Daggit 9. At the request of the Secretary on April 28, reports were transmitted to him on April 30, on (a) Mr. Daggit's talk with Mr. MacKeachie of the War Department relative to the reaction of the OPA price ceiling order on sales, and (b) Mr. Daggit's telephone conversation with Mr. Bofinger of the A & P Company of New York on the same subject. - Mr. Daggit 10. A table was prepared, and was transmitted to the Secretary on April 3, showing the Department of Commerce series on salaries and wages, July 1941 revision, for the years 1939, 1940, and 1941, and January 1942. - Mr. Daggit, Miss Spiegel Regraded Unclassified 304 - 32 - 3. At the request of Under Secretary Bell on March 19, comments were prepared on a draft regarding taxation of pension trusts, and a memorandum was transmitted to him on April 2. - Mr. Reagh II. Projects or studies under way 1. The Board of Actuaries of the Civil Service Retirement and Disability Fund is laying out detailed plans for tabulating and processing data for use in preparing the regular five-year valuation of the Civil Service Retirement Fund for the purpose of determining the liabilities of the Government under the Civil Service Retirement Law. Under the law, such a valuation must be prepared as of July 1, 1940. The valuation is well under way. - Mr. Reagh, Mr. Brown 2. Several years ago a committee was organized for the purpose of studying ways and means to extend retirement benefits to all Government employees regardless of, Civil Service status. The working committee, the Sub- committee on Retirement, has again become active. A report has been prepared but has not yet been submitted to the main committee. - Mr. Reagh, Mr. Brown 3. At the request of Mr. A. R. Pilkerton, Auditor of the District of Columbia, an actuarial quinquennial valua- tion is being made of the Policemen's and Firemen's Pension Fund of the District of Columbia. This valua- tion 18 being made by the Treasury Department in accord- ance with the 1942 District of Columbia Appropriation Act, approved July 1, 1941. Substantial progress has been made in the basic work for the valuation. - Mr. Reagh Mrs. Grossman 4. At the request of the Division of Tax Research, several conferences have been attended with members of the Division of Tax Research, the Legal Staff of the Bureau of Internal Revenue and the Legislative Counsel regard- ing proposed changes in the tax laws relating to pension trusts and the taxation of insurance companies. - Mr. Reagh 305 - 33 - 5. The Chief Counsel's office of the Bureau of Internal Revenue requested a member of the Government Actuary's office to appear in Dallas, Texas, on May 4, at a hearing before the United States Board of Tax Appeals, to testify as to whether the Austin Mutual Life In- surance Company of Austin, Texas, can qualify as a life insurance company for tax purposes. A member of the staff 1s assisting in the preparation of the testimony.- Mr. Brown Other Projects or studies 1. Publications (a) All the material submitted for the April issue of the Treasury Bulletin was reviewed and edited. - Mr. Lindow, Mr. Lynch The following tables were revised and expanded for the April issue: 1. Sales of United States savings bonds since May 1941. - Mr. Lindow, Mr. Brown, Mr. Kroll 2. Sales of Postal savings stamps since May 1941 - Mr. Lindow, Mr. Brown, Mr. Kroll 3. Over-the-counter closing quotations of public marketable securities issued by the United States Government and by Federal agencies. - Mr. Brown, Mr. Kroll 4. The table showing offerings and maturities of Treasury billa. - Mr. Lindow, Mr. Lynch 5. A page was substituted for the complete chapter on net capital movements to the United States, 1935 through January 1942 - Mr. Lindow (b) For the publication Prices and Yields of Public Marketable Securities issued by the United States Government and by Federal Agencies, computations were made and copy was prepared for the issue covering the month of March. - Mr. Brown, Mr. Kroll 306 - 34 - (c) Arrangements have been made to transmit to Mr. Schwarz's office, for use of the Christian Science Monitor, the weekly figure of yield on partially tax-exempt long-term Treasury bonds. - Mr. Brown 2. Correspondence Replies were prepared to letters received on subjects relating to the work of the Division, and letters drafted elsewhere and submitted to the Division for that purpose were reviewed. - Miss Michener, Mr. Lindow, Mr. Foy, Miss Ziegler, and other members of the staff in appropriate fields of work During April 570 letters were received in the Division and 544 were handled a.s required. 3. Charts Charts are prepared and continuously brought up to date for use in memoranda and in chart books on special sub- Jects, and corresponding photographic, photostatic, and multilith work is carried on. This 1s done in the Graphic Section under the supervision of Mr. Banyas. A statistical report on the work of the Graphic Section for the month of April 1s attached. Regraded Unclassified 307 Work completed in the Graphic Section, Division of Research and Statistics, during April 1942. For Division For Type of work of R&S Others Total chics leg charts: Total charts completed 46 27 73 Bond book charts completed - - - Charts brought up to date: 3 bond chart books brought up to date 26 times - 26(t) All other charts brought up to date 659 39 698 Miscellaneous: Total jobs 21 18 39 raphic: Photographs: Total jobs 79 32 111 Number of- Negatives 223 39 262 Contact prints 555 130 685 Enlargements 118 77 195 stortate: Total jobs 179 63 242 Number of- Lettersise copies 4,662 2.337 6,999 All other copies 3,414 1,622 5,036 ultilith: Total jobs 24 5 29 Number of- Zinc and paper plates 120 8 128 iscellaneous: Total jobs 31 13 444 Regraded Unclassified Beginning January 1942 : Type of work : : Jan. : Feb. Mar. : : : : : April May : June : : Total : : A. Graphic: New charts completed 81 13 67 73 Charte brought up to date 764 719 748 698 Bond book charts completed 2 1 - 67 3 bond books brought up to date 26 (t) 24(t) 26(t) 26(t) Miscellaneous 19 30 24 39 3. Photographic: Photographs: Total jobs 116 121 138 111 Number of- Negatives 409 512 373 262 Contact prints 837 758 745 685 Ealargements 376 434 454 195 Photostats: Total jobs 297 312 279 242 Number of- Lettersise copies 9,074 11,623 8.573 6,999 All other copies 3,400 3,298 4,927 5,036 Multilith: Total jobs 17 16 31 29 Number of- Zinc plates 144 163 331 128 Miscellaneous: Total jobs 31 18 19 44 308 Regraded Unclass 309 SEP 9 1942 My dear Mr. President: I an enclosing report on our exports to some solected countries for the period ending August 20, 1942. Faithfully, (Signed) H. Morgenthau, Jr. Secretary of the Treasury The President, The White House. Del. by S. S. Agent 5:40 9/9/42 Enelosure HDW/ofe 9/8/42 How FILE COPY SECRET 310 September 5. 1942 Exports to Russia, Free China and selected blocked countries as reported to the Treasury Department during the ten-day period ending August 20, 1942 1. Exports to Russia Exports to Russia, as reported during the ton-day period ending August 20, 1942, amounted to $23,325,000, as compared with $33,940,000 and $53,799,000 during the the military equipment exported during the period under same periods in July and June, 1942, respectively. Among tanks. (See Appendix 0.) review were 18 light bombers, 36 fighter planes and 27 2. Exports to Free China Exports to Free Chima, as reported during the period under review, amounted to $192,000, as compared with $590,000 and $2,707,000 during July and June, 1942, respectively. Military equipment accounted for about 79% of the total. (See Appendix D.) 3. Experts to selected blooked countries Experts to selected blocked countries are given in Appendix A. Most important were experts to Sweden and Switzerland amounting to $324,000 and $167,000, respectively. ISF/efs 9/5/52 Regraded Unclassified STRICTLY CONFIDENTIAL 311 SUMMARY OF UNITED STATES DOMESTIC EXPORTS to SELECTED COUNTRIES AS REPORTED TO THE TREASURY DEPARTMENT FROM EXPORT DECLARATIONS RECEIVED DURING THE PERIOD INDICATED 1/ (In thousands of dollars) Total Total 10-Day 10-Day Domestic Exports Domestic Exports Period ended Period ended August 1, 1942 to July 28, 1941 to Aug. 20, 1942 Aug. 10. 1942 August 20, 1942 July 31. 1942 3. S. R. $23,325 $14,970 $38,295 $742,941 le China 192 208 400 97,720 in 48 30 78 2,858 tserland 167 357 524 11,537 324 260 584 18,056 tugal 5 1 6 9,743 beh North Africa 2/ 1,773 29 1,802 6,305 asury Dipartment, Division of Monetary Research September 2, 1942. Many of the export declarations are received with a lag of several days or more. Therefore this compilation does not accurately represent the actual shijment of & particular period. Includes Noroeco, Algeria, and Tunisia. JMWirl 9/2/42 Regraded Unclassified SECRET 312 APPENDIX B Exports from the U. 3. to Free China and U.S.B.R. as reported to the Treasury Department July 28, 1941 - August 20, 1942 w (In Thousands of Dollars) Exports to Exports to Free China U.B.S.R. July 28, 1941 - Jan. 24, 1942 $ 32,758 8 98,902 Jan. 26 - Jan. 31 6,938 9,608 Feb. 1 - Feb. io 4,889 13,325 Feb. 10 - Feb. 20 4,853 26,174 Feb. 20 - Feb. 26 3/ 2,921 28,119 Mar. 1 - Mar. 10 2,879 32,502 Mar. 10 - Mar. 20 8,058 20,556 Mar. 20 - Mar. 31 y 42,435 Apr. 1 - Apr. 10 4,836 Apr. 11 - Apr. 20 5,335 66,906 Apr. 21 - Apr. 30 2,827 50,958 May 1 - May io 5/ 296 28,652 May 11 - May 20 1,872 18,000 May 21 - May 31 2,533 26,180 June 1 - June 10 3,399 12,764 June 11 - June 20 2,707 53,799 June 21 - June 30 1,664 49,919 July 1 - July 10 7,900 35,657 July 11 - July 20 590 33,940 July 21 - July n y 3,066 35,669 Aug. 1 - Aug. 10 208 14,970 Aug. 11 - Aug. 20 192 23,325 Total $ 100,723 $ 782,056 1. These figures are in part taken from copies of shipping manifests. 2. Beginning with February 1 figures are given for 10-day period instead of week except where otherwise indicated. 3. 8-day period. 4. 11-day period. 5. Due to changes in reporting procedure by the Department of commerce this report is incomplete for the period indicated. Treasury Department, Division of Monetary Research September 4,1942 ISF/efe 9/4/42 Regraded Unclassified SECRET 313 APPENDIX 0 Principal Exports from U. S. to U. s. s. R. as reported to the Treasury Department during the ton-day period ending August 20, 1942 Value Unit of (Thousands Quantity Quantity of Dellars) TOTAL EXPORTS $ 23,325 Principal Items: Aircraft Light bombers (2 eng. A-20) 5,150 No. Fighters (P-39) 18 No. Fighters (P-40) a No. 15 Aircraft assessories, including engine parts - - 2,449 Amounition .30 sal. 2,261 No. 10,000,000 .32, .38 and .45 eal. No. .50 eal. 3,000,000 No. 2,628,000 37 m. arser piereing No. 8,860 75 m. armer piereing and high explosive No. 25,497 Anti-aireraft armer piereing No. 21,840 20 m. tracers (aireraft) No. 15,885 20 m. high explosive (Cerlikes) No. 45,000 Military tanks - medium (N-3) No. 27 2,160 Military tank parts & accessories - - 1,242 Pork and causage Lb. 2,703,969 1,005 Iron and steel plates, sheets and strip M.L.b. 7,698 860 Motor trucks Be. 457 678 Steel bare and reds M.Lb. 7,257 547 Treasury Department, Division of Monetary Research September 4,1942 ISF/efe 9/4/42 Regraded Unclassified SECRET 314 APPENDIX D Principal Exports from U. s. to Free China as reported to the Treasury Department during the ten-day period ending August 20, 1942 (Thousands of Dellars) TOTAL EXPORTS # 192 Principal Items: Military equipment 152 Relief supplies - drugs and bielegies 15 Aluminum plates, sheets, bare and rede 10 Scientifie instruments 6 Relief supplies - surgical and hospital 4 Treasury Department, Division of Monetary Research September 3,1943 Isf/efs 9/4/42 Regraded Unclassified 315 SEP 9 1942 My dear Mr. Secretary: I an enclosing copy of report on our exports to some selected countries for the period ending August 20, 1942. (9-5) ) Sincerely yours, (Signed) H. Morgenthau, Jr. Secretary of the Treasury The Honorable, The Secretary of State, Washington, D. c. Enelosure Del. by Sturgis (Messenger) 5:39 9/9/42 HDW/efs 9/8/42 glow FILE COPY Regraded Unclassified SECRET 316 September 5. 1942 Exports to Russia, Free China and selected blocked countries as reported to the Treasury Department during the ten-day period ending August 20, 1942 1. Exports to Russia Exports to Ruesia, as reported during the ton-day period ending August 20, 1942, amounted to $23,325,000, as compared with $33,940,000 and $53,799,000 during the came periods in July and June, 1942, respectively. Military equipment accounted for 60% of the total. (See Appendix 0.) 2. Exports to Free Chima Experts to Free Chima, as reported during the period under review, amounted to $192,000, as compared with $590,000 and $2,707,000 during July and June, 1942, respectively. Military equipment accounted for about 79% of the total. (See Appendix D.) 3. Experts to Selected blocked countries Exports to selected blocked countries are given in Appendix A. Most important were exports to Sweden and #witzerland amounting to $324,000 and $167,000, respectively. ISF/efs 9/5/42 Regraded Unclassified STRICTLY CONFIDENTIAL 317 SUMMARY OF UNITED STATES DOMESTIC EXPORTS to SELECTED COUNTRIES AS REPORTED TO THE TREASURY DEPARTMENT FROM EXPORT DECLARATIONS RECEIVED DURYNG THE PERIOD INDICATED w (In thousands of dollars) Total Total 10-Day 10-Day Domestic Exports Donestic Exposition Period ended Period ended August 1, 1942 to July 28, 1941 to Aug. 20, 1942 Aug. 10. 1962 August 20, 1942 July 11. 1942 3. 5. a. $23,325 $14,970 $38,295 $742,941 China 192 208 400 97,720 in 48 30 78 2,858 tserland 167 357 524 11,537 den 324 260 584 18,056 tugal 5 1 6 9,743 noh North Africa 21 1,773 29 1,802 6,305 sury Department, Division of Monetary Nesearch September 2, 1942. Many of the export declarations are received with 4 leg of several days or more. Therefore this compilation does not accurately represent the actual shipment of a particular period. Includes Morocco, Algeria, and Tumisia, Jirl 9/2/42 Regraded Unclassified SECRET 318 APPENDIX s Experts free the U. s. to Free China and U.S.S.R. as reported to the Treasury Department July 28, 1941 - August 20, 1942 (Thrusands of Bollars) Exports to Experts to U.S.L.L. July 28, 1941 - Jan. 24, 1942 $ 32,798 6 98,902 Jam. 26 - Jan. Feb. 1 - Feb. Feb. 10 - Feb. Feb. 20 - Feb. Mar. 1 - Mar. 10 Mar. 10 - Mar. Mar. 20 - Apr. 1 - Apr. 11 . Apr. n- May 1 . s y y 2/ May 11 - May n . June 1 - June 11 - June 21 - July 1 - 7,900 July 11 - July July a - July y 3,066 Aug. 1 - Aug. 11 - Aug. 192 Total 8 100,723 $782,096 1. These figures are in part taken from espies of shipping manifests. 2. Beginning with February 1 figures are given for 10-day period instead of week except where otherwise indicated. 3. S-day period. 4. 11-day period. 5. Due to changes in reporting presedure by the Department of Commerce this report is incomplete for the period indicated. Freasury Department, Division of Monstary Recearch September 4,1942 ISF/efe 9/4/42 Regraded Unclassified SECRET 319 APPENDIX e Principal Exports from U. B. to U. s. s. a. as reported to the Treasury Department during the tem-day period ending August 20, 1942 (Thousands of Bellars) TOTAL EXPORTS 8 23,325 Principal Items: Military equipment 14,010 Pork and sanange Irea and steel plates, sheets and strip Motor trucks Steel bare and reds Tracklaying tracters Copper wire, insulated Burgical and medical instruments Lathes Aluminum and alleys, oreão 1,005 ##### Irea and steel billets Irea and steel wire md manufactures freasury Department, Division of Monetary Recearch September 4,1942 197/efe 9/4/42 Regraded Unclassified SECRET 320 APPENDIX D Principal Exports from 8. a. to Free this as reported to the Treasury Department during the ton-day peried ending August 20, 1942 (Thousants of Bellars) TOTAL EXPORTS 8 192 Principal Items: Hilitary equipment 1 Relief supplies - drugs and biolegies Aluminum platos, cheets, bars and reds Scientific instruments Relief supplies - surgical and hespital - Treasury Department, Division of Monetary Recearch September 3,1942 IW/efs 9/4/20 Regraded Unclassified 321 SEP 9 1942 - Dear Doesns I have received m. Restew's letter of August as and the malesed draft of e sable to the Lenden Taboury es beekkeeping prose- dures for reciprossl aid. We have exemined the materials, and, in view of the difficulties of stating values at this time, - are in agreement with the directives of the draft cable. Very sincerely yours, (Signed) Henry Secretary of the Treasury Dear Achesem, Assistant Secretary of State, Washington, Do C. Orig. File Airect to Dr. White's Photostatic File - NMC office By Messenger, Sturgis, 5:35 9/9/42 JENsdal 9-2-42 Regraded Unclassified 322 SEP 9 - 1942 Dear Eds I have received Mr. Restow's letter of August 25 and the enclosed draft of a cable to the London Embessy on bookkeeping prose- dures for resiprecal aid. Be have examined the materials, and, in view of the diffi- culties of stating values at this time, no are in agreement with the directives of the draft cable. Very sinserely yours, (Signed) Henry Secretary of the Treasury Mr. E. & Stettinius, Administrator, Office of Lend-Lease Administration, 515 - 22nd Street, N. Dog Washington, D. C. Orig. File direct to Dr. White's office Photostatic File - NMC By Messenger, Sturgis, 5:35 9/9/42 JEHsdel 9-2-42 EPPICIAL COMMUNICATIONS TVI nel RECRETARY or STATE WASHINGTON, D C DEPARTMENT OF STATE WASHINGTON August 25, 1942 My dear Mr. Secretary: Mr. Acheson did not have an opportunity before he left on vacation to discuss with you the rather troublesome question of reporting the value of the aid our forces are receiving from the British, Australian and New Zealand Governments, and from the Fighting French authorities, in various parts of the world. You may recall the cables sent from London by Mr. Stettinius and Mr. Harriman, copies of which are attached for convenience, expressing the view that no records in money terms should be kept. Mr. Acheson asked me to send you a copy of his letter to Mr. Stettinius, and a copy of a draft cable which he prepared, for your viewe. Mr. Stettinius will, I believe, call a meeting soon of those most interested in this policy. Sincerely youre, Eugene V. Rostow Executive Assistant to Assistant Secretary. Enclosures: 1. Copies of cables from Mr. Stettinius and Mr. Harriman 2. Letter to Mr. Stettinius from Mr. Acheson. 3. Draft of cable. The Honorable Henry Morgenthau, Jr., Secretary of the Treasury Regraded Unclassified DEPARTMENT OF STATE PARAPHRASE CONFIDENTIAL Telegram no. 4244 Dated: July 29, 1942 midnight From: LONDON Rec'd: July 29, 1942 11:26 p.m. FROM HARRIMAN AND STETTINIUS FOR ACHESON AND MORGENTHAU. The question of requiring dollar values to be placed on reciprocal aid received from the British by us has been studied by us. The conclusion has b en reached by us that it would be unwise for OLLA to require valuation and it would present major practical difficulties. Stettinius' cable of July 29, no. 4245 to McCabe gives our reasons for this conclusion. In this cable Stettinius has asked McCabe to discuss this matter with you immediately. After much consideration this conclusion was reached by us. In order that he can put the policy of not requir- ing dollar values into effect as soon as possible, we hope you agree and will advise McCabe accordingly. Since reciprocal aid is being received in increasing vol- ume daily, prompt action is desired. WINANT. DCA:MBJ 7/30/42. Copies to: Mr. Hopkins (2) Mr. Stettinius (1) Mr. McCabe (1) via Stettinius Mr. Morgenthau (1) direct Regraded Unclassified DEPARTMENT OF STATE PARAPHRASE CONFIDENTIAL Telegram no. 4244 Dated: July 29, 1942 midnight From: LONDON Rec'd: July 29, 1942 11:26 p.m. FROM HARRIMAN AND STETTINIUS FOR ACHESON AND MORGENTHAU. The question of requiring dollar values to be placed on reciprocal aid received from the British by us has been studied by us. The conclusion has b en reached by us that it would be unwise for OLLA to require valuation and it would present major practical difficulties. Stettinius' cable of July 29, no. 4245 to McCabe gives our reasons for this conclusion. In this cable Stettinius has asked McCabe to discuss this matter with you immediately. After much consideration this conclusion was reached by us. In order that he can put the policy of not requir- ing dollar values into effect as soon as possible, we hope you agree and will advise McCabe accordingly. Since reciprocal aid is being received in increasing vol- ume daily, prompt action is desired. WINANT. DCA:MBJ 7/30/42. Copies to: Mr. Hopkins (2) Mr. Stettinius (1) Mr. McCabe (1) via Stettinius Mr. Morgenthau (1) direct Regraded Unclassified DEPARTMENT OF STATE PARAPHRASE CONFIDENTIAL Telegram no. 4245 Dated: July 29, 1942 midnight From: LONDON Rec'd: July 30, 1942 12:30 a.m. FROM STETTINIUS FOR MCCABE. The question of placing dollar value on reciprocal Aid furnished by the British has been studied by me and I have discussed this also with British and United States officials in London. The views which follow have the approval of Hop- kins and Harrimon, whom I have also consulted. One. I am convinced that major practical difficulties would be encountered in en attempt to require dollar values to be placed on reciprocal A10 and 88 B result of this study I deem it unwise. (A) Services being rendered end facilities loaned to us by the British represent a great variety of different types of equipment. There are not available here records of values. Because of the acute shortage of manpower the British do not in many cases even for their own use keep value data, although of course they keep records of supplies. Value data must be compiled for the particular arrangement in the case of real estate facilities and services, etc. The manpower necessary to prepare estimates of the value of such services and supplies 18 not had by the British. Any attempt to reach an agreement on values they also oppose on policy grounds. Consequently, if we insist, weeshall have to prepare the estimates of values ourselves. In attempting to estimate values for these items the results would be of questionable significance and the loss of manpower involved would be great. Since whatever person who makes the esti- mate will go to great lengths as a practical matter to make and estimate what he can sustain, the difficulty 18 not avoided by requiring values only "when readily available". The receipts which the British prepare and ask us to sign are very often expressed in general terms without de- tailed supporting inventories for the reasons given above. Under Regraded Unclassified DEPARTMENT OF STATE PARAPHRASE CONFIDENTIAL Telegram no. 4245 Dated: July 29, 194? midnight From: LONDON Rec'd: July 30, 1942 12:30 a.m. FROM STETTINIUS FOR MCCABE. The question of placing dollar value on reciprocal Aid furnished by the British has been studied by me and I have discussed this also with British and United States officials in London. The views which follow have the approval of Hop- kins and Harriman, whom I have also consulted. One. I Am convinced that major practical difficulties would be encountered in an attempt to require dollar values to be placed on reciprocal nid and as a result of this study I deem it unwise. (A) Services being rendered and facilities loaned to us by the British represent a great variety of different types of equipment. There are not available here records of values. Because of the acute shortage of manpower the British do not in many cases even for their own use keep value data, although of course they keep records of supplies. Value data must be compiled for the particular arrangement in the case of real estate facilities and services, etc. The manpower necessary to prepare estimates of the value of such services and supplies 1s not had by the British. Any attempt to reach an agreement on values they also oppose on policy grounds. Consequently, if we insist, weeshall have to prepare the estima tes of values ourselves. In attempting to estimate values for these items the results would be of questionable significance and the loss of manpower involved would be great. Since whatever person who makes the esti- mate will go to great lengths as a practical matter to make and estimate what he can sustain, the difficulty is not avoided by requiring values only "when readily available". The receipts which the British prepare and ask us to sign are very often expressed in general terms without de- tailed supporting inventories for the reasons given above. Under Regraded Unclassified - 2- Under Lend Lease they are willing to rely on these records for their credit. I am convinced that more records should not be insisted upon by OLLA if they do, since a vast amount of work would be involved in the compilation of them. (B) It 1s unwise to value reciprocal 31d because the dollar sign would be emphasized, which it has consistently been sought to bonish from the Lend Lease picture and to divert attention from the concept of A common pool of re- sour ces by the President. The actual and relective (?) ex- tent of the sacrifice represented by the Aid which the British are providing for us cannot be adequately expressed by any money figure. A real dialocation is represented by every unit of labor moved to meet American needa, since British production is 80 circumscribed by limitations of material, transportation facilities, labor and factory and storage space for every article provided and every bit of factory or storage space made available. Two. Certain difficulties such AA reporting to Congress will be created in not having A money value TO place on re- ciprocal .a1d received end I realize this. These difficulties can be met, I believe, by telling the story in terms of tons of food delivered, maintenance facilities provided for planes and tanks and trucks, war material made available and thousands of men transported and housed, etc. The considerations I have set forth above in any event far out weigh such difficulties. Three. I am also cabling Acheson and Morgenthou. Please show this cable to them and discuss it with them. The neces- BARY steps to put his (7) policy decision into operation should be taken If they agree. The release from the necessity of wasting army manpower in the United Kingdom to estimate value of supplies and weapons which the Army receives here would probably be welcomed by McCloy; vill you please advise. Without the necessity of making further independent detailed inventories, this change of policy should permit Army to sign such receipts 88 may be satisfactory to the British Government and forward them to Washington. Four. To keep records of any kind of miscellaneous services and facilities would clearly be entirely imprac- ticable. In the proposed reverse Lend-Lease agreement In this has already been recognized and provided for. OLLA's accounting instructions to them appropriate provision De- should be made and I suggest you make this clear to the partmen's concerned. WINANT. DCA:MBJ Copies to: 7/30/42. Mr. Hopkins (-); Mr. Stettinius (3); Mr. McCabe (1) Regraded Unclassified - 2- Under Lend Lease they are willing to rely on these records for their credit. I am convinced that more records should not be insisted upon by OLLA if they do, since a vast amount of work would be involved in the compilation of them. (B) It is unwise to value reciprocal aid because the dollar sign would be emphasized, which it has consistently been sought to bonish from the Lend Lease picture and to divert attention from the concept of A common pool of re- sources by the President. The actual and relective (?) ex- tent of the sacrifice represented by the Aid which the British are providing for us cannot be adequately expressed by any money figure. A real dialocation 19 represented by every unit of labor moved to meet American needs, since British production is 80 circumscribed by limitations of material, transportation facilities, labor and factory and storage space for every article provided and every bit of factory or storage space made available. Two. Certain difficulties such AA reporting to Congress will be created in not having A money value to place on re- iprocal ,Aid received and I realize this. These difficulties can be met, I believe, by telling the story in terms of tons of food delivered, maintenance facilities provided for planes and tanks and trucks, var material made available and thousands of men transported and housed, etc. The considerations I have set forth above in any event far out weigh such difficulties. Three. I Am also cabling Acheson and Morgenthau. Please show this cable to them and discuss 1t with them. The neces- sary steps to put his (?) policy decision into operation should be taken If they agree. The release from the necessity of wasting army manpower in the United Kingdom to estimate value of supplies and weapons which the Army receives here would probably be welcomed by McCloy; vill you please advise. Without the necessity of making further independent detailed inventories, this change of policy should permit Army to sign such receipts 88 may be satisfactory to the British Government and forward them to Washington. Four. To keep records of any kind of miscellaneous services and facilities would clearly be entirely imprac- ticable. In the proposed reverse Lend-Lease agreement In OLLA's accounting instructions to them appropriate provision De- this has ready been recognized and provided for. should be made and I suggest you make this clear to the partments concerned. WINANT. DCA:MBJ Copies to: 7/30/42. Mr. Hopkins (°); Mr. Stettinius (3); Mr. McCabe (1) Regraded Unclassified August 23, 1942 Dear Fd: I epp interested in the cables which you and Mr. Harriman sent from London about how to report the receipt of 71% received by use from the British Govern- gint on the lend-lesse bnsis. I AM in complete agree- ment =1th your view that 19 fer prople as possible, both on our side and on the British, be withdrawn from the prosecution of the unr to eaguge in bookkeeping 01 this sort. It 1ª my view, however, that R record of quantities should Le Att in ili CANNA of orticles receive) by us " -10, and that the record should alvo, where 018, DA reased in monotary terms. in the find, f.x I 903 it, regeists wight LP outsined which inseribe " is tr naterred in sufficient detail to Rano of value, without aking Army or y niel in the f1eld to street to report the of : : very :- recei A. The receipts could De formal to = 11 etif:, elties in inston or else- the :- considerte the resta end 31 officers, .0. 1: rogarly :- the the LIKE in intelligible of :- the firm 61.2 sated Kindy of lustion 1.= 1:1: or terretic. The - 1n or see 200.0 L.E 10:0 not to is to pre-1 lengths to cive eati- :en of every velues, 5: instrud 13 seek of tor the TOPPY. si--le rule of thurt for non uting Trited :: ... in ..... -1.ht used. Lencel off revies one resided in in in 16 listerstion =1th the agencia: atu 1:y recet in, tt Amorte 9. tettleius, Jr. Vifice of Lend-Layee *ginistration sington, Regraded Unclassified August 23, 1942 Dear Fd: I CPP interested in the cables which you and Mr. Harriman sent from London about how to report the receipt of 010 received by us from the British Govern- gint on the lend-lesse basis. I am in complete agree- ment >1th your view that 29 Sex people 3.9 possible, both on our side and on the British, be withdrawn from the prosecution of the war to enguge in bookkeeping 01 this sort. It 1 ᵃ my view, however, that R record of quantities should be *** in IL cases or articles received by us 10 -10, and that the record abruld A1-0, where recenting DA reased in monetary terms. In the fluid, is I Bes it, regetate night LP ottained which tractibe -: is tr nainrred in sufficient det=il to catim :- of value, without taking Army y mel in the f1eld to attennt to report the 3: recei A. T:10 receipts could De to etrf:, either in tenton or else- 110 to the end 1 2 roserly the LAKE en :- the 01/2 asted ny Kindy of 1.= 1:15 or The e 12 or see 200.00 L.E. 10:0 not to in to pre-1 lengthe to Take ext:- :en of e,sey values, 5: of the si--le rule of thurt uting -1:ed **tee -1ght used. rusided in in =1th the agencias -tu 13y recel ink the accorts tetticlus, J1. Iffice of Lend-Lanee einistration ington, Regraded Unclassified - 2 - Reporte from abroad provered in this way could be the basis, if desired, of a consolic ted \regrom of book- keeping in Washin ton which could further trinslate the recibrocal a1d records into the value here of scuivalent materials and services. That bookkee 1nc in turn 40 0 not aim at complete dollar value records, bet would be directed towards the preparation of re orts which ould be more meaningful than a room fill of the original re- eeists for wash Jun and plane 90° lind to the trices. niotetrotive extiune ar, er tentative, and are designed only to illustrate the wint of principle T vish to raise. I should B prool.by -5 views on this procesal, and on the attached draft of as cable in 16 'y to it. Marriman. than 119 are All of one mind on this problem, which I truct will be sonn, I auggest that we do inform the Army and FORT, and 1.8 an appropriate revision of their instructions to field of icers. Sincerely yours, DEAN acheson Enclosure: Draft of cable. Regraded Unclassified August 22, 1942 1th reference to your no. 43%, of July 2, from atettinius one Barrison to longentinu and Acheson, and nor no. 4245, or July no, from Stettining to HoGabe, we eur; st this One. All arti Я are a reed that quantitative records are examptial lost tive 8 "er weode as onsible he energed in keeding them; that hatever records we want should be re ared by United States personn 1. Such records 9111 not be sub 10the for unit to the British, if they BO Tefer, and -111 not off ct the broader issues of lend- lease milement. T.C. Any Havy ersonnel in the field should de instruct C not to atten it reporting in money values, crro here such values , a'e readily assignable. A 0.00 Jene At one or are central offices in ashl... ion and erha-s elsewhere, LE convenient, should be directed to coordinate field reports and receipts of officers into a clear picture, using money valuee where such values can be obtained without effort, and presenting the rogram otherwise as sug ested in paragraph two of telegram 4345. Rule of thunb techniques for computing values n1 ht i:e used to reach broad estimates. Four. Regraded Unclassified August 22, 1942 1th ref rence to your no. 43%, of July 2, from stettinius one Harrison :- Margenthau and Acheson, and Aux no. 4245, of July no, from Stettining to McGabe, we an, st this One. All arti a re я it reed that quantitative cords are examptial but that 8 few soble an onsible be energed in keepin; them; that hatever records we want should be re ared by United States personn 1. Such records 1111 no: be sub 10tre for was to the British, If they BO Tefer, and 111 not off ct the broader issues of lend- lease willement. T.O. Any ano Mavy ersonnel. in the field should be instruct C not to atter 1 re ortin in money values, cree where such values are readily assignable. A 1000 at one or cry central offices in ashin in and erha 18 Glowhere, LE convenient, should be directed to coordinate field reports and receipts of officers into a clear picture, using money valuee where such values can be obtained without effort, and presenting the Togram otherwise as sug ested in paragraph two of telegram 4245. Rule of thumb techniques for computing values n1 ht be used to reach broad estimates. Four. Regraded Unclassified - 2 - Four. These reports could be used in Washington for any further bookkeeping desired, and could be translated into the dollar value of equivalent U. S. supplies and services. It will be made clear in the next Report to Congress that full reports on the reciprocal aid program in monetary terms are impossible, and that the objective in reporting will be to present as clear a picture, in broad outline, as considerations of secrecy permit. Detailed instructions are being prepared here with Army, Navy and Lend-Lease officials. Five. This cable has been approved by Messrs. Hopkins, Morgenthau, Stettinius and McCabe. Regraded Unclassified 331 THE BRITISH SUPPLY COUNCIL IN NORTH AMERICA Box 680 TELEPHONE: REPUBLIC 7860 BENJAMIN FRANKLIN STATION WASHINGTON, D. c. September 9th, 1942. SECRET Dear Dr. White: The gold and dollar figures for August are as follows: Aug. 7 Aug.15 Aug.28 Aug.31 Total Gold (incl. Belgian) 758 761 771 773 Official Dollar Balance 158 166 170 195 Total Gold and Dollars 916 927 941 968 Less: Belgian Gold 110 105 110 110 Scattered Gold 168 180 182 182 Gold Reserve against immed- iate liabilities 10 10 10 10 AVAILABLE GOLD AND DOLLARS. 628 632 644 666 We had a special payment of $15 million for wool during the month. Yours sincerely T.K. Bewley. Dr. H.D. White, Director of Monetary Research, U.S. Treasury, donessed M 30 Washington, D. C. 332 NOT TO BE RE-TRANSMITTED COPY NO. 13 BRITISH MOST SECRET U.S. SECRET OPTEL No. 312 Information received up to 7 A.M., 9th September, 1942. 1.. NAVAL HOME WATERS. Night 7th/8th. Our light forces attacked 2 escorted merchant ships off DIEPPE and CHERBOURG respectively. In each attack, the escorts were damaged by gunfire, and it is possible one merchant ship was hit by torpedo. One motor torpedo-boat and one motor gunboat slightly damaged. MEDITERRANEAN. 7th. One of H.M. Submarines torpedoed a 9,000 ton ship in convoy west of CRETE. 2. MILITARY EGYPT. Night 6th/7th. Our patrols were active in Northern and Central sectors. In the South, increased movement of enemy mechanical transport was reported. 7th. Little activity reported. RUSSIA. Russian attacks in Northern and Central sectors reduced. Orf DON Front Bussians have slightly extended a bridgehead on the Southern bank north- west of KLETSKAYA. 3. AIR OPERATIONS WESTERN FRONT. 8th. Bostons, escorted by Spitfires, of which 2 are missing, attacked 2 whale oil ships at HAVRE and CHERBOURG. No hits claimed. One enemy aircraft crossed southwest coast, causing slight damage at SELCOMBE. A JU 88 WELD destroyed by Beaufighters 185 miles south-south-west of BISHOP'S ROCK. 8th/9th. 249 aircraft despatched to attack FRANKFURT, where weather was not favourable. 7 missing and 3 crashed. 13 enemy aircraft flew over East Anglia and Southern England. Damage slight. 2 were destroyed and one damaged by night fighters. EGYPT. Night 6th/7th. Wellingtons bombed TOBRUK HARBOUR and EL DABA landing ground. 7th. Our fighters (one missing) destroyed 5 enemy fighters over battle area. Night 7th/8th. 15 enemy aircraft flow over DELTA area. 3 shot down by night fighters. MEDITERRANEAN. 7th. Allied aircraft bombed a southbound convoy southwest of CRETE. One ship was hit and near misses were obtained on others. 4. INTELLIGENCE A movement of Japanese aircraft from Central and South China to TONKING and BURMA is reported to have taken place during the latter part of August. It is estimated that as a result of this, the total number of aircraft in BURMA, THAILAND and INDO-CHINA is now about 300 and that the number in Contral and South CHINA has been reduced to about 120. Regraded Unclassified 333 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION AM, DATE Sept. 9, 1942 TO Secretary Morgenthau FROM Mr. Hoflich Subject: Bombing Raids over Western Europe during August, 1942. 1. The month of August marked the beginning of U.S. Army Air Force raids over Western Europe with Flying Fortresses. Seven such raids were conducted in August largely on points in occupied France, without the loss of a single Fortress. These were all high-altitude daylight raids. The degree of bombing accuracy is reported to have been unusually high, due in large part to the Norden bombsights. Eleven or twelve Flying Fortresses took part in six of the raids, and seven were sent out to bomb Rotterdam on August 27. Escort was provided by British fighter planes. 2. The R.A.F. made seventeen bombing raids over Western Europe in August, with a loss of 122 planes. The largest raid was the one over Kassel, in which 306 planes participated. Secret British Operations Reports give some details on eight large-scale R.A.F. bombing raids. In these raids the losses ranged from 3-1/2 percent to 12-1/2 percent, and averaged slightly over 7 percent of the planes participating. (British Operations Reports. Official Communiques and press despatches) - 2 - 334 Bombing Raids over Western Europe during August R.A.F. U.S.A. Total I. Raids over Western Europe Reported during August 17 7 23 II. Bomber losses in raids over Western Europe 122 0 122 III. Cities reported attacked A. Germany Amoneberg (industrial) 1 1 Coblenz (railway and industrial center) 1 1 Duisburg (port, railway and indus- trial center) 1 1 Dusseldorf (steel and armaments production) 1 1 Emden (port, shipbuilding) 1 1 Flensburg (sub.building, port) 1 1 Frankfort (railway and manufacturing center; railway and elec- trical equipment, rubber center) 1 1 Kassel (locomotive, aircraft and tank manufacturing; railway repair shops) 1 1 Mainz (motor, locomotive and chemi- cal works) 3 3 Nuremberg (manufacturing) 1 1 Osnabrueck (rail center; steel, copper and aluminum works) 2 2 Saarbruecken (railway center, coal and iron industry) 1 1 West Baden 1 1 Wiesbaden (small industries) 1 1 Total reported attacks on German cities during August 17 0 16 - 3 - 335 R.A.F. U.S.A. Total III. Cities reported attacked (con.) B. Occupied Areas Abbeville (airfield, rail sheds, port) 1 1 2 Amiens (railway yards) 1 1 Cherbourg (port, airport, ship- building) 1 1 Dunkirk (3rd French port, petro- leum refineries) 1 1 Gdynia (Baltic port) 1 1 Havre (port, shipyards, power station). 2 2 La Pallice (port) 1 1 Le Trait (sub. building yards) 1 1 Meaulte (aircraft plants) 1 1 Rotterdam (port) 1 1 Rouen (rail center, shipyards, fuel tanks, power stations) 1 1 Wevelghem (airdromes) 1 1 Total reported attacks on cities in Occupied Areas during August 5 9 14 Total reported attacks on Western European cities in August 22 9 30